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Reasons for Converting Traditional Ira to Roth Ira

Apr 22, 2008
Converting Traditional Ira to Roth Ira is not difficult at all but you have to know what the rules are because failure to observe them may lead to losses.

There are many reasons as to why one may wish to change Ira plan. They key is in understanding what the advantages are to each type of individual retirement account.

The traditional Ira is a retirement savings plan that is tax deductible once it is withdrawn, which usually takes place after retirement. If taxes are low, then this is beneficial to you as you will gain some savings in the process. If you have made money through the trading of stocks, then this money is not taxable as long as you do not withdraw it.

In a Roth Ira you pay your taxes up front, but do not have to pay taxes when you withdraw your money when you retire. If you expect to have high taxes at that time this can be a good thing.

The process of converting a traditional Ira to a Roth Ira is known as a rollover. One of the main advantages that a Roth Ira has over a traditional one is that it has no limits on withdrawals.

For most people that are retiring or wish to pass over their assets to heirs it is the most convenient way to do it. With the traditional Ira, there are limits as to how you can withdraw per year.

All the amounts and assets in a Roth Ira are eligible for distributions and there is no minimum age set to start distributions unlike the traditional Ira that must start at the age of 70 , so your money grows for a longer time.

You should be aware that if you choose to convert, you will be taxed on the Ira portion of your retirement package. The only exceptions are any non-deductible deposits that you might have made to the traditional Ira that you wish to convert.

A Roth Ira is a good shelter if you have a big enough estate as you can include it and in this way you will have access to more of it or your heirs will instead of a traditional Ira where estate and savings will be taxed at withdrawal or distribution.

With the traditional Ira the estate will be put together with the Ira savings and taxed as income tax and you will be forced to make withdrawals as from the age of 59 .
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