Investment Updates
Ponder These 4 Reasons For Roth IRA Conversions
Published Tuesday, December 2, 2014 at: 7:00 AM EST
The hubbub over Roth IRA conversions continues unabated. Many who haven't taken the plunge are debating whether to use this technique, while others who already have transferred traditional IRA funds to a Roth are looking to feather their growing nest egg. Barring any radical changes in the tax law, a conversion remains a workable option for knowledgeable retirement-savers.
What's the driving force behind the conversion trend? The reasons may vary from one person to the next, but there are essentially four main types of conversions: strategic, tactical, opportunistic, and hedging.
First, let's examine the roots of a Roth conversion. With a traditional IRA, you can build up your account with contributions that may be partially or totally tax-deductible, in addition to amounts that are rolled over tax-free from an employer's retirement plan such as a 401(k). But distributions are taxable at ordinary income tax rates to the extent they represent deductible contributions and earnings. What's more, you must begin taking required minimum distributions (RMDs) from an IRA in the year after you turn age 70½.
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