(972) 417-2855
Get Whiteboard Animated Videos like this one for your business here:

(619) 850-5835

Here are some important factors to consider before Converting Funds from a Traditional IRA to a Roth IRA

Roth IRAs provide tax-free income and eliminate the need for Required Minimum Distributions.

But the conversion of funds from a traditional IRA to a Roth IRA is considered a taxable distribution, subject to federal income tax and a possible penalty.

If your funds consist of investment earnings and tax-deductible contributions, then converting your traditional IRA funds to a Roth IRA will result in federal income tax due on those funds.

Paying the tax due with IRA funds reduces the amount that grows tax free in the Roth IRA.

IRA funds used to pay the tax may be subject to additional income tax and possibly a penalty. However, if you pay the tax due with non-IRA funds, that allows more dollars to be funneled into the tax-free Roth IRA.

We can help you determine whether this strategy makes sense in your situation to enjoy tax-free income. Call us today.

…(read more)

LEARN MORE ABOUT: IRA Accounts

INVESTING IN A GOLD IRA: Gold IRA Account

INVESTING IN A SILVER IRA: Silver IRA Account

REVEALED: Best Gold Backed IRA

Individual Retirement Accounts (IRAs) offer investors a great way to save for retirement while providing tax advantages. One of the most common questions associated with IRAs is whether one should switch from a Traditional IRA to a Roth IRA. Here, we discuss the factors that can help you decide whether or not a switch makes sense for you.

First, let’s understand the difference between Traditional and Roth IRAs. Traditional IRAs involve pre-tax dollars, meaning contributions reduce your taxable income for the year. You’ll pay taxes on any contributions made after retirement when you withdraw the funds. On the other hand, Roth IRAs are funded with after-tax dollars. There is a waive of taxes when you withdraw the money later in life. Another essential difference is Required Minimum Distributions (RMDs). Traditional IRAs require individuals to begin taking RMDs at age 72, while Roth IRAs don’t have RMDs.

If you’re wondering whether you should switch from a Traditional IRA to a Roth IRA, the two primary factors to consider are taxes and time. One aspect to keep in mind is your current tax bracket. If you are in a higher tax bracket today than you expect to be in the future, it might make sense to pay taxes now instead of when you retire, as you’ll pay more if you wait. Think of this option as paying taxes on the seeds instead of the harvest.

Another crucial aspect to consider is the length of the time. Roth IRAs offer tax-free withdrawals, which are an excellent diversification tool. The longer you have invested, the higher your investment is worth. If you expect your earnings to grow significantly over time, switching to a Roth IRA could be hugely beneficial.

Additionally, the Roth IRA offers flexibility when it comes to withdrawing funds. With a Traditional IRA, if you take a withdrawal before the age of 59 1/2, you’re subject to a 10% penalty fee. With a Roth IRA, since you already paid taxes, you can withdraw contributions (but not earnings) without any penalty fees.

In conclusion, deciding whether to switch from a Traditional IRA to a Roth IRA is a complex decision that depends on your specific financial circumstances. It’s important to consider factors such as current tax rates, time, and earning potential when making this decision. Investing in a diversified portfolio with both types of accounts can also be an excellent strategy for retirement. Your financial advisor can help you weigh the pros and cons and evaluate the best option for you.