Jay's Article At Christianpf.com: Should You Convert Your Traditional IRA to a Roth IRA in 2010?
2010 Provides a unique opportunity for IRA owners.
In 2010, you have the opportunity to convert your traditional IRA to a Roth IRA. The usual income limitations that stand in the way for converting will not apply. So, should you convert? Let’s look at why this may or may not be a good idea.
Here’s why a Roth IRA conversion may make sense for you
Consider this: a Roth IRA allows tax-free growth and tax-free income distributions at age 59½ or older and as long as you have held your Roth account for 5 years or longer. While your contributions to a Roth IRA do not allow a tax-deduction, the younger you are, the longer time frame you have for tax-free growth.
Now realize converting to a Roth IRA comes with a price tag. You will have to pay ordinary income taxes on the amount you convert. Whatever amount is converted is added to your income for the year. However, there may be a silver lining: With the market being down, most likely your account value may be the lowest it has been in years. This means by converting now you may pay lower taxes.
It is also worth noting that with all of the reckless government spending, there is a great chance that tax rates could increase in the years ahead. This is another reason why now may be as good time as ever to convert. If converting may send you into a higher tax bracket, you could consider doing a partial conversion (only converting a portion of your Traditional IRA to avoid going into the next bracket).
Even if you are older, a Roth still may make sense. Normally with an IRA, at age 70 ½ you are required to withdraw from your IRA through mandatory required distributions. However, with a Roth, there is no mandatory withdrawal rule allowing you more time to accumulate tax-free. Also, under the present tax laws, converting a traditional IRA to a Roth can lower the size of your taxable estate. This type of prudent estate planning could allow for decades of tax-free growth for those converted assets.
A few additional estate planning points: If you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals. This allows those Roth IRA assets to keep compounding untaxed across the rest of your spouse’s lifetime.
