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Should you convert
to a Roth IRA? |
| The Roth IRA has been analyzed, discussed, and
advertised. One of the most challenging questions this retirement vehicle brings up is
whether or not you should convert your existing IRA to a Roth IRA. How the Roth IRA works:
You're allowed to contribute up to $2,000 per year to a Roth IRA, the same as any other
IRA, but your contributions aren't tax-deductible. However, there's an important,
offsetting benefit: Principal and earnings in a Roth IRA may never again be subject to
federal income tax, and a Roth IRA isn't subject to mandatory distribution requirements.
Example: Barbara contributes $2,000 to a Roth IRA in 2000.
Although Barbara receives no tax deduction, this IRA can grow to any amount and it could
never again be subject to tax. And for the rest of Barbara's life, withdrawals may be as
large or small as desired, provided Barbara is at least 59 1/2 years old and she's had the
IRA for at least five years.
What about a conversion?
The law also allows you to convert an existing IRA to a Roth IRA. If you do convert to
a Roth IRA, you'll have to pay regular income tax on your existing IRA. But once you pay
the tax, your rollover Roth IRA will offer the benefits of a Roth IRA.
Fortunately, the conversion lends itself to a checklist approach. The checklist below
is designed to give you a head start dealing with the conversion question, but it’s
not intended to be the last word. |
Use this checklist to help you decide
if you should convert to a Roth |
 Do
you currently have an IRA?
|
|
Yes_______
No______
|
| Is
your adjusted gross income (AGI) $100,000 or less? |
|
Yes_______ No______
This income limitation is set by law, and it's the same for singles or married
couples. |
| Do
you expect to be in a higher tax bracket when you retire? |
|
Yes_______ No______
If you expect to be in the same or lower tax bracket when you retire, it may not
make sense to pay the conversion tax today. |
| If you do roll your
existing IRA into a Roth IRA: |
| Will
you be able to pay the resulting income tax with cash from outside your IRA? |
|
Yes_______ No______
If you must tap into your IRA to pay the tax, conversion to a Roth IRA is unlikely
to pencil out. But remember: you can reduce the potential tax bill by making a partial
conversion. |
| Will
you be able to leave the money in the rollover IRA for at least five years? |
|
Yes_______ No______
You could incur tax and a penalty if you tap your Roth IRA in less than five years. |
If you checked "Yes" to all
questions, you could be a good candidate for a rollover Roth IRA. However, even if the
checklist indicates that you should convert to a Roth IRA, your personal situation could
point in the opposite direction.
|
Before you make a final decision - yes or no - be sure to give me a call, or send
me an
e-mail with your questions. |
| © This material is copyrighted. |
 |
KATHLEEN R
"BILLIE" LOVETT
CERTIFIED PUBLIC ACCOUNTANT
P. O. BOX 642
REEDSVILLE, WV 26547
PHONE: 304-864-6618
FAX: 304-864-3744
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