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s p o t l i g h t o n - t a x - f r e e i n c o m e Roth IRA at retirement! why you may want to consider funding your retirement with a

You may want to consider opening a Roth IRA. While the contributions are not deductible, a Roth IRA provides you with tax-free income at retirement provided certain conditions are satisfied.

2010 is prime time to learn about Roth IRAs. Many individuals have wanted to convert a Traditional IRA to a Roth IRA, but were not eligible because their income exceeded the income limitations for making conversions. In 2010 these income limits will be repealed and high wage- earners will have a golden opportunity to create a vehicle which will not only generate tax-free income at retirement but also not have any required minimum distributions.

ConveRTIng A TRAdITIonAL IRA To A roth ira caN be right For You iF:

  • You believe you’ll be in a higher tax bracket once you retire then you’ll benefit from paying taxes now at a lower tax bracket

  • You can pay the income taxes on the conversion from a source other than the IRA itself

  • You don’t need the assets in the next 5 years

  • You expect to have a significant taxable estate and you’d like to reduce it by the income tax paid on the amount converted that not only has the potential to generate tax-free income at retirement but also will not have any required minimum distributions during the owner’s life. However, the after death required minimum distribution rules will still apply.

When you convert to a Roth IRA, you will have to pay ordinary income tax on all your pre-tax contributions and tax deferred earnings. For conversions involving annuity contracts, the taxable amount is based on the entire value of the contract, which may include, in addition to the account balance, the actuarial present value of any additional benefits (living and death benefits) provided under the contract along with the addition of certain loads and charges, which were deducted from the account balance during the immediately preceding 12 months. If you convert before attaining age 59½ and pay the taxes attributable to the conversion out of the assets of the IRA being converted, you may be subject to a 10% federal income tax penalty on the assets used to pay the tax.


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