Benefits of 2010 Roth IRA Conversion
As a way to encourage individuals to move their funds from traditional IRA accounts and covert to Roth IRA accounts the government has instituted the 2010 Roth IRA conversion. This conversion, when planned and completed properly will be a great opportunity for individuals who are planning their retirement.
The impetus of the 2010 Roth IRA conversion was the government’s need to get money. Traditional IRA accounts are not taxed until the money is removed. Roth IRAs are taxed before the money goes in. So, the need of the government for tax dollars could be a great benefit to individuals who want to create a retirement income that will not be taxed.
When a person converts their traditional IRA to a Roth IRA they will have to pay taxes on the value of the contribution. This is calculated using several different methods which include income of the individual, tax bracket, etc. However, once this tax has been paid and it is in the Roth IRA there will not be a need to pay taxes on it when one retires. That money, and the growth that it sees during the time it is in the account are not taxable income.
In order to get more individuals to participate in the 2010 Roth IRA Conversion the government also lifted the limitation that disqualified people making over $100, 000 in adjust gross income. These individuals can now participate in this IRA. The phase out of the ROTH contributions continues to be in place so if an individual cannot contribute because of the phase out there has been no provision made for them to re-enter the program.
The benefits of a Roth are innumerable. One is that the money in the ROTH is pre-taxed so one does not have to worry about taxes when they begin to receive benefits from it. the drawback, of course, is that there is no IRA deduction with these IRAs. Certainly a worthwhile trade off.
The next benefit is in regards to the Required Minimum Distribution that tax deferred IRAs have. When a person turns 70. 5 they have to take money from their IRA and it is taxed. If they don’t take the money out they are taxed and penalized. Since Roth’s has already been taxed it does not fall into the Required Minimum Distribution trap.
source: ezinearticles.com
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