Pro's of a Roth IRA Conversion

The Roth IRA is possibly one of the best savings vehicles Congress has given to the American taxpayer. You get to save after-tax dollars, allow them to grow tax-free and take distribution in retirement tax-free.

In 2010 Congress allowed owners of traditional IRA's to make a full or partial conversion to a Roth IRA. Yes, the tax is still due on the money held in your Traditional IRA but once the tax has been paid and the money transferred into the Roth, you are done.

Roth IRA's have many benefits. Today we will address the reasons for converting a Traditional IRA to a Roth. Next week we will cover the reasons when and why you might not/should not convert to a Roth. Note that most reasons are not hard and fast rules. As conditions change, e.g. tax bracket, employment, etc. your decision needs to be reviewed, maybe annually.

Benefits of converting are numerous:
- retirement assets taxable on distribution now move into an account that will grow free of taxes and be distributed free of taxes as well.

- Roth IRA's have no required minimum distribution at age 70 1/2. You may hold a Roth as long as you like and take distributions whenever you like (once you are over 59 1/2 and the account has been opened for 5 years.)

- Distributions, also know as income, pass through as non-events in the federal tax system so payouts do not count as increased income to raise your income tax bracket, Medicare premiums or impose the 3.8% tax on investment income.

- Roth IRA's prove beneficial during the in-between years of retirement before Social Security kicks in.

- Distributions provide necessary income boost without increasing taxes as in filing FAFSA for college aid.

- A Roth conversion helps you better control your tax strategy as once you have paid the tax you no longer worry about tax increases or changing tax policy. Your income/distributions will be tax free.

Be $ Smart - consider the benefits of converting all or part of your Traditional IRA to a Roth IRA. Be sure to consult your tax preparer before making the move.

Important Topics to Cover as You Approach Retirement

There are many topics to cover before and during retirement. Sometimes the tricky ones may be neglected or ignored by your financial adviser. Here are a few to bring to the table:

1. Social Security - Claiming social security at 62 might not be the best deal for you. There are several claiming strategies which may put many more thousands of dollars in your pocket over your lifetime. Ask your financial adviser how these strategies may benefit you.

2. Required Minimum Distribution - RMD starts when you turn 70 1/2 for your tax-qualified accounts. The first year can be tricky with the possibility of two payments in one year. Find out the rules so you don't pay more taxes than necessary or be penalized if you forget to take the distribution.

3. Smart tax-planning - Your financial adviser cannot give you tax information (unless he/she is licensed to do so) but they can tell you what type of accounts you hold and how distributions may be taxed. Ask your tax adviser for guidance on the best withdrawal methods in retirement to keep taxes as low as possible.

4. Pension replacement - Today many people do not have pensions. Your adviser can recommend ways to set up a lifetime stream of income along side your social security benefits. Most likely he/she will suggest an income annuity, fixed annuity or immediate annuity. Be wary and shop around as annuities come in many sizes and colors!

5. Professional Help - maybe you've taken a few courses and read some books about retirement planning. You may want to do it yourself to feel in control or to avoid fees. Just like everything else, know when to ask for help and seek a professional. There may be a few critical parts you missed or need tweaking. Find a fee-only adviser to give you a second, unbiased opinion. The advice may prove invaluable.

Be $ Smart - prepare for retirement with good planning and advice.