Converting A Traditional IRA To A Roth IRA Plan–Are There Benefits For Changing Individual Retirement Accounts?

Many individuals have begun investing in an Individual Retirement Account as a way to begin planning for retirement through investment methods outside of popular options like a 401(k). Yet, a traditional IRA and Roth IRA plan can be quite different and, thanks to changes in conversion rules for 2010, there have been more individuals who are considering converting their traditional IRA to a Roth account.

Yet, many are asking if there are any benefits which may be given for changing their retirement account from a traditional IRA to a Roth IRA plan. Obviously, a Roth IRA has been chosen by investors simply because they are allowed to withdraw all their earnings tax-free later in life and there is no required distributions, meaning they are not forced to begin taking money out of this account at a specific age.

However, there are those who worry about what they may lose if they convert from a traditional IRA and there are some investors who simply benefit from the fact that they can write off contributions to a traditional IRA account each year.

This year, some investors have been considering converting a traditional IRA into a Roth account because the IRS is allowing for investors to use a three-year window to pay for taxes they might owe on a conversion to a Roth account. Also, there have been income limits set for individuals who are looking into investing in a Roth IRA, but those limits have been removed thanks to these changes in conversion rules.

Understandably, these opportunities to convert a retirement account into a Roth IRA may not be beneficial for everyone, but this year has brought about opportunities for investors to begin contributing to a Roth IRA plan, which again, has benefited numerous individuals due to the fact that they can withdraw their earnings tax-free later in life.

While the tax bracket an investor is in has also factored into the decision of many as the whether they converted to a Roth IRA, the main draw for many, in spite of taxes which may be payed now, is the tax-free withdrawals that are associated with the Roth IRA.  Again, an investor’s situation will only tell if converting is right or not, but those who are choosing to transfer their traditional IRA to a Roth are those who are willing to pay now so they can keep earnings tax-free later.