Retirement Investing With Roth IRAs And Traditional IRA Conversions–Roth Contribution Limits And Conversion Benefits

Retirement investing with Roth IRAs has become more popular due to the fact that these forms of retirement investments can offer investors the option of withdrawing their earnings tax-free after they have retired, but options for converting a traditional IRA to a Roth account have also been quite popular as 2010 brought the opportunity for investors who were previously was unable to convert a traditional IRA to a Roth account if they made more than $100,000. Obviously, some individuals have been able to convert a traditional IRA, that may have a substantial amount built up, to a Roth IRA and thanks to new options when it comes to paying taxes on this conversion, investors are able to spread out their payments throughout tax 2011 and 2012 tax years and now focus on a Roth IRA and the withdrawal benefits that may come with this particular investment.

When it comes to converting, an article on Foxbusiness.com outlined this conversion option also mentioned that, “while the conversion option for taxpayers with incomes of more than $100,000 is in effect for years after 2010, the two-year conversion tax deferral is allowed only on conversions made last year. Any taxes due on 2011 or future year conversions must be paid by the time you file taxes for the tax year in which the traditional IRA is converted to a Roth.” So, investors who are considering converting a traditional IRA to a Roth account must look at these costs, as even though there have been some opportunities for more investors to convert to a Roth IRA, it may not always be in an individual’s best interest.

Consumers have often been prompted by financial counselors to diversify their retirement portfolio in order to make sure that they will be in a position to acquire the most safety they can, in terms of their finances and retirement income, rather than just focusing on one particular investment option, like a 401(k), or solely relying on Social Security during one’s retirement years. However, when it comes to converting a traditional IRA to a Roth account, this will be a situation where the individual investor must do research on how this will affect their particular financial and retirement situation.

According to Bankrate.com, An important factor in deciding whether to convert is considering how much time you have before you retire and will [you] potentially need to use the money.” Essentially, there are some investors who may be close to retirement and if they convert to a Roth IRA could pay a substantial amount in taxes, which could lower the overall total they have when it comes to their retirement savings. Obviously, if an individual feels their tax bracket may still be high when they retire, which would also require a large sum of taxes to be met if they kept a traditional IRA, converting at the present time could be beneficial as some of these losses could be made up and earnings could be withdrawn tax-free. Yet, there have been some investors who are going to be in a much lower tax bracket when they retire and, as a result, may lose more from a Roth IRA conversion than if they simply pay taxes on traditional IRA withdrawals.

Yet, for investors who are looking at options for retirement savings, there are opportunities outside of traditional and Roth IRAs that can also be considered, but when it comes to converting a traditional IRA to a Roth account, this again will require a great deal of research on the part of an investor so that they can figure out what converting will mean for their particular situation and future financial goals. While, again, consumers can benefit from Roth IRAs due to the tax-free withdrawals, this should not be the driving force behind a conversion as, again, consumers must make sure that they will benefit from whatever retirement investment they choose, as each investor’s particular financial situation will differ and require their attention.