Roth IRA Conversion

Unlike traditional IRAs, Roth IRAs come with amazing benefits for an investor. Such benefits include tax-free retirement and early withdrawals. Both investment options offer varying features and benefits. Below is an expert guide on Roth IRA conversion.

It is an Individual Retirement Account (IRA) to which one contributes after-tax dollars. A Roth IRA permits withdrawal on a tax-free basis, subject to a few conditions. Roth IRA was established in 1997 and named after a former Delaware Senator, William Roth.

With a Roth IRA, there are zero current-year tax benefits. However, once your account has been open for five years and you hit the age of 59 ½, your earnings and Roth IRA contributions grow tax-free. Additionally, you can withdraw your earnings penalty and tax-free.

This refers to taking the balance of an existing traditional IRA account, in part or whole, and transferring it to a Roth IRA. We can help you with the Roth IRA conversion process, provided you meet the Roth IRA eligibility requirements.

Below are some notable benefits of contributing to a Roth IRA:

 1. Tax-free Retirement Income

What sets traditional IRAs and Roth IRAs apart is how they deal with taxes. On the one hand, traditional IRAs provide upfront tax breaks. Your contributions will be deductible on the year you make contributions to your account. Subsequently, when withdrawing from a traditional IRA during your retirement, you will owe income tax.

On the other hand, you may have to be patient a little longer for the tax savings payoff with a Roth IRA. Fortunately, the wait will be worth it, especially if you predict your tax rate will be higher in the future. Since you took care of your tax tab upfront, you won't have to deal with the IRS. As such, when you start withdrawing during your retirement, you owe nothing.

2. Easy Withdrawal and Early Access to Your Money

Generally, the money you deposit into your traditional retirement savings account tends to remain locked up until your retirement. While this may be an ideal saving plan, it doesn't help much if you have an emergency. If you withdraw money from a traditional IRA account before hitting 59 ½, you may face a 10% early withdrawal penalty and an income tax bill, subject to a few expectations.

Conversely, you have access to easy, fast withdrawals with a Roth IRA account, especially when you need to use the money. In addition, with a Roth IRA, you can dodge taxes and penalties provided the withdrawal amount comes from the contributions and not earnings.

3. Flexible Withdrawal Rules

Funds in traditional IRAs are subject to Required Minimum Distributions (RMDs). This means you will be required to start withdrawing from your account at age 72. Unfortunately, if you forget to cash the check, the IRS may impose a 50% penalty excise tax on the funds you failed to withdraw.

On the other hand, Roth IRA is RMD-free. Your money can stay put as long as you like. Consequently, your investment grows in the account tax-free, and you can avoid selling assets at a bad time.

We are financially trained and experienced in IRA matters. We understand the Roth IRA rules and advise you accordingly. We can provide a personalized Roth IRA vs. traditional IRA breakdown. Most importantly, we can help you with the Roth IRA conversion process, saving you the time and hassle of doing it yourself.

Should I Own A Roth IRA?

Yes, you should. A Roth IRA is an ideal investment savings account, especially if you are in a lower tax bracket than you anticipate to be in your retirement.

How Much Can I Contribute to A Roth IRA?

The total contributions you make yearly to your Roth IRA cannot be more than $6,000. However, the Roth IRA limits increase by $1,000 once you hit age 50.

How Is a Roth IRA Different from A Traditional IRA?

A traditional IRA requires you to contribute pre-tax dollars. Once you hit the age of 59 ½, your withdrawals are taxed as current income. In addition, your funds will grow tax-deferred.

On the other hand, a Roth allows you to contribute after-tax dollars. Moreover, your funds will grow tax-free. Once you hit the age of 59 ½, your withdrawals are penalty and tax-free.

Can I Contribute to An IRA for My Spouse?

Yes, you can. To contribute to a Roth or traditional IRA, you need to have taxable income (earned income). An exception to this is a spousal IRA, where you can contribute on behalf of a spouse who is not working for pay, provided you have an earned income.

What Can I Convert or Rollover to a Roth IRA?

You can convert all your eligible IRA assets to your Roth. This process should be conducted with due diligence, perhaps with the help of a financial planner.