IRA Conversion to ROTH IRA

Am I eligible to Convert my existing IRA to a ROTH IRA and is it a good financial decision?

Converting your Traditional IRA to a ROTH IRA can be one of the best financial decisions made when saving for retirement if done correctly. Prior to 2010, there was an income limit that restricted the conversion to a ROTH IRA if your (AGI) was over $100,000. In 2013 the income limitation does not exist for conversion; however, it does still exist for contributions. This doesn’t mean it won’t come back in the future, but for 2013 anyone can convert an existing Traditional IRA to ROTH regardless of income.

For example, if a person has a Traditional IRA with $350,000 invested, that IRA can be converted to a ROTH and all the taxes need to be paid for the 2013 tax year. After converting to a ROTH, the money grows tax-free. Paying the taxes on this money now might sound like a tough pill to swallow, but the potential tax savings down the road can be significant. Wouldn’t you rather pay taxes on $350,000 now then pay taxes on $1,000,000 in the future? One of the keys to doing this correctly is paying the taxes with funds outside of a qualified plan. Paying the taxes with money from the IRA defeats the purpose and will negate the full tax saving potential.

This strategy might not be right for everyone. There are many factors to consider, such as the time frame before retirement as well as having the cash on hand to pay the taxes. Consulting a Certified Financial Planner and your tax advisor is prudent before initiating a conversion.

Please note this process also applies to 401k’s, SEP IRA’s, and 403b’s. To learn more contact Fogel Capital Management, Inc. 772 223-9686.