Conversion to Roth IRA Still Possible for 2011.
Posted: February 17th, 2011 | Author: Joe | Filed under: Investing | Tags: Investing, IRA, IRA Conversion, Retirement, ROTH IRA, Tips | No Comments »While 2010 is already wrapped up, there are still financial considerations you need to make about the previous year in the near future when it comes to Roth IRAs. In 2010, the conversion rules have changed regarding converted Traditional IRA accounts and Roth IRAs. The government made it effective in 2010 that account holders could spread the income tax payments owed on the conversion over the following two years – 2011 and 2012.
This rule change would allow you to keep half of the income tax amount you owe still in the account, earning compound interest until the tax deadline for the following year. It is currently too late to take advantage of that tax incentive if you have not already made the conversion. But there is still good news for those wanting to convert to a Roth IRA in 2011.
Making the Change
In the past, there were strict limitations on who could make the conversion from a Traditional IRA account to a Roth IRA based on income. For now those laws have changed and are beneficial to anyone. Since you can still convert tax deductible investments as permitted by the government, making the switch in 2011 is a good investment strategy.
To make the conversion, you will have to pay the taxes you will owe later now but once the funds are converted, you will not have to pay income taxes on the amount you save ever again. For those who can afford to pay the income tax due out of there own funds rather than their investment funds, the conversion will be that much more beneficial.
When You Shouldn’t Switch
There are certain circumstances that may not prove to be beneficial to convert to a Roth IRA. First, if you know for sure that the rate of your income taxes will be lower in your retirement years than where they stand today, making the conversion does not really benefit you financially.
Secondly, if you don’t have the cash necessary to pay the income taxes you will owe from making the conversion, it is not wise to use your investment funds as a payment source as you will be required to pay a penalty on those funds as well as the tax.
Retirement Power
The most beneficial aspect of converting from a Traditional IRA account to a Roth IRA in 2011 is the investment power you are using towards your retirement years. Retiring with tax-free funds available later in life is a strategic move anyone can accomplish. For those who do not qualify for a Roth IRA account because of the income limitations, consider opening a Traditional IRA account and converting to a Roth IRA in the future.
Choosing your investments wisely for an easier, more comfortable retirement is part of your overall good financial health. If you have not taking the steps to plan for a financially healthy retirement, it is never too late to start investing, though it is always best to being when you are young. Not all financial strategies meet the needs of every future retiree but it is worth your time and money to explore what works for you. The Roth IRA account definitely has many advantages and it may be the ideal starting point for your retirement investment planning.
