The Basics of Roth IRA Conversions

Roth IRAs are a very attractive and effective retirement option for people in the Corona and Citrus Heights areas and beyond. This is primarily because the money in these accounts has already been taxed and will not be subject to additional taxation when it is withdrawn (as long as all requirements are met). Ideally, this will allow those planning for retirement to see the most growth over a long period of time.
Do you have money in a traditional IRA or 401(k) plan that you would like to move into a Roth IRA? Or have you been ineligible in the past to open a Roth IRA because of your income? It’s possible that you may be able to receive the benefits of this retirement account through a Roth conversion. To know what is best for your unique situation, visit the financial advisors at Safeguard Investment. In the meantime, familiarize yourself with the process.

glasses-and-newspaperHow do Roth Conversions Work?

Typically, you will do what is called a “trustee-to-trustee” transfer, which involves moving all or a portion of your assets from a 401(k) or traditional IRA from one financial institution to a Roth IRA operated by another. You may also simple redesignate the money without changing the firm you use. You will typically have 60 days to move the funds before you will be subject. After that, you may have to pay a 10% early withdrawal fee.

Who is Eligible for a Roth Conversion?

Previously, those whose income exceeded $100,000 annually were not eligible to attempt a Roth conversion. The IRS has lifted that income cap, so Roth IRA benefits are now available to everyone. However, your income must be under a certain amount to contribute additional money to your Roth IRA following the conversion. This amount depends on your tax filing status. Find out where you stand by reading this page from the IRS.

Is the Conversion Taxed?indian-head-nickels

Yes. You are required to pay income tax on the contributions you make to your Roth IRA. This money is added to your overall income and could adjust your tax bracket. Because of this, many people will spread out their Roth conversions over several years.

Are Roth Conversions Suitable for Those Nearing Retirement?

The answer to this question lies in two important factors: when you plan to retire and your taxes. Will it be wiser to pay taxes on your retirement funds now or when you retire? An experienced tax planner can take a look at your financial and tax situation to help you make an informed decision. Visit Safeguard Investment today to speak to a tax planner in Citrus Heights or Corona, CA, and see if a Roth Conversion would fit in your retirement strategy.

Safeguard Investment Advisory Group