Roth IRA accounts are subject to the same limits as a traditional IRA which we discussed last week. The way a Roth works differently than a traditional IRA is that if you keep your investment in a Roth IRA for at least five years then none of your withdrawals are taxable, even the money you have earned on your investment is tax free.
You could be on the cusp of a great opportunity. With the stock market poised to rocket upward in the next 18 months now might be a great time to convert your Traditional IRA to a Roth IRA. First let's talk a bit about the market. There have been numerous studies done by the large investment houses that indicate huge market gains after midterm elections. It does not matter which political party is in power or who is going to take over. The results are the same. In fact the smallest increase after a midterm election in the last 100 years was 14+%, the average was around 50%.
You could be on the cusp of a great opportunity. With the stock market poised to rocket upward in the next 18 months now might be a great time to convert your Traditional IRA to a Roth IRA. First let's talk a bit about the market. There have been numerous studies done by the large investment houses that indicate huge market gains after midterm elections. It does not matter which political party is in power or who is going to take over. The results are the same. In fact the smallest increase after a midterm election in the last 100 years was 14+%, the average was around 50%.
Now some news about conversions. This year is the first in which taxpayers may convert funds in regular IRAs (as well as qualified plan funds) to Roth IRAs regardless of their income level. What's more, taxpayers have the choice of paying the tax on the conversion when they file their 2010 returns, or deferring the tax hit on the conversion to the 2011 and 2012 tax years.
How do you know if this conversion is right for you?
The consensus view is that the conversion route should be considered by taxpayers who:
... have a number of years to go before retirement (and are therefore able to recoup the dollars that are lost to taxes on account of the conversion);
... anticipate being taxed in a higher bracket in the future than they are now; and
... can pay the tax on the conversion from non-retirement-account assets (otherwise, there will be a smaller buildup of tax-free earnings in the depleted retirement account). This issue is made much more convenient now due to the ability to spread the burden over the next two years.
... have a number of years to go before retirement (and are therefore able to recoup the dollars that are lost to taxes on account of the conversion);
... anticipate being taxed in a higher bracket in the future than they are now; and
... can pay the tax on the conversion from non-retirement-account assets (otherwise, there will be a smaller buildup of tax-free earnings in the depleted retirement account). This issue is made much more convenient now due to the ability to spread the burden over the next two years.
One thing to be a little careful of your tax brackets. It is considerably more certain as to what your tax bracket will be in 2010 than it will be in 2011 and beyond. Time is running out to figure out what to do so let me know if I can help you. http://www.robideaucpa.com/
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