The new year brings an opportunity to all owners
of IRA accounts – The ability to convert a Traditional (taxable) IRA into a ROTH IRA regardless of your earned income. Example: Mr. Jones converts $100,000 from a Traditional IRA to a ROTH-IRA. $0 taxes are due for 2010, $50,000 of taxable income is reported both in 2011 and 2012. We want to help you answer the key question: “Should I convert?” We should look beyond that question and focus on the coordination of your overall retirement plan distribution strategy. It is in this context that we will find your answer to the “should I” question.
3 Main Reasons to consider converting:
- You have money available outside of your IRA accounts to pay 1. the taxes in 2011 and 2012,
- You will allow the ROTH-IRA conversion to compound for a minimum of 10 years,
- You are experiencing a 1-3 year period of unusually low earned 3. income.
3 Main Reasons you should not convert:
- You are certain that you have a lower taxable income (including 1. income from taxable IRA /401(k) accounts) in your non working retirement years,
- You are expecting an increase in your taxable wages, due to 2. bonus, inheritance, etc,
- If you have not considered the taxable impact a ROTH-Conversion has on your overall retirement distribution strategy.
Great News: The IRS, under current ROTH-Conversion rules, allows anyone who elects a ROTH-Conversion in 2010 to recharacterize the conversion back to a Traditional IRA by October 15, 2011.
Best Strategy: Call us at (248) 482-3600 and we will provide you with a detailed analysis using all of our resources available to help you make an informed decision. This is also a great opportunity to review the investment strategies in your short and long term accounts.
