Opportunities of Roth

As a Financial Adviser, I see the Roth IRA as an opportunity to establish tax-free income for clients while passing the remainder of their Roth account to their beneficiaries at death. Come to think of it "RETIRE without TAXES" makes the conversion attractive. Having said that, the decision must be carefully analyzed. You can start by running some numbers on some of the online calculators. I suggest using the Motley Fool conversion calculator here. However, the subject of conversion is more than just numbers. It's so personal that you must take a hard look at your entire situation. You have to weigh the tax pros and cons and understand that there may be other non-tax and or non-financial reasons to convert or not to convert.

A Few pointers, consider conversion if:

• You won't tap into the Roth IRA within five years and expect to be in a higher tax bracket in the future. Paying the taxes now while you're in a lower tax bracket will save you income taxes later.

• If you want to build an estate for heirs, this could be a great way to minimize the overall income tax burden to your family. Heirs would get the proceeds free of income taxes and in the interim the proceeds could continue growing free of taxes.

• If you have extra funds to pay the income taxes due on the conversion without tapping into the traditional IRA money.
  

• If you don't anticipate needing the IRA money to live on, and you wish to avoid the annual mandatory distributions required from a traditional IRA when you reach age 70½. Paying the taxes now will allow the money to grow tax-deferred through the years ultimately to be received by heirs tax-free later.

As you can see from this discussion, there's no easy answer to the Roth IRA conversion question. Examine this issue using your own set of circumstances to determine the pros and cons as they pertain to your particular situation. That's the only way you can make the decision that's best for you and for your family. Given that the tax year is fast coming to a close, now is the time to act. Seek help from a Roth Conversion Specialist or IRA Specialist.

For more information, see the IRS publication 590 here

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