Things you need to know about Roth IRA conversions
1. Income no bar
Previously, taxpayers with income $ 100,000 or less were allowed to convert a traditional IRA or retirement plan to Roth IRA. But the good news now is that there is be no income-eligibility limit to convert your retirement account to Roth IRAs. It has been if effect from the starting of this year. This means even highly salaried people can also convert from simple IRA to Roth IRA.
2. No extra payments for a year
If you convert to Roth IRA in 2010, you need not to worry about paying your tax bill on the converted amount for a year. Since the taxes will be levied on the entire amount that you convert from the traditional retirement account to Roth IRA, you can report half of the amount on your 2011 tax return as well as the other half on your 2012 tax return. You can save a lot of amount to pay your taxes at that time of the year. Conversion to Roth account depends completely on you. You can convert part of the amount and pay the taxes as you proceed forward. But if you have converted your retirement account to Roth in 2010, then can you get the 2-year period to pay your taxes. But if you convert a lump sum amount, you may need to pay your taxes in quarterly basis in 2011 and 2012 without getting penalized.
3. No problem from the federal government
The federal government won’t be stopping the conversion to Roth IRAs as if they do it, they may face revolt from the taxpayers. The Roth IRAs are the ones to pay the US government and if they cancel the Roth IRA, they may have to think of other means of income.
In a traditional IRA, the withdrawals are taxed whereas in Roth IRAs, the withdrawals are not taxed. In traditional IRAs, the minimum age to withdraw money is 59 ½ while the maximum age is 70 ½. But if you convert to Roth IRA, you or your heirs have no minimum requirement to withdraw money. If you don’t need the money as retirement income, the money can grow as tax-free amount.
Jason Holmes is a regular writer with Debt Consolidation Care and is also a contributory writer with other financial sites. His expertise is woven around various aspects of the debt industry and with his e-books he tries to impart to people the different situations and simple solutions to get out of difficult situations. Some of his works include e-books like ‘Credit Score The Quintessential Therapy for a Happy Pocket’, Take Creditors and Collection Agencies to Small Claims Court’ and, My Story- From Depression To a Smile’.