Ken Berry for CPA Practice Advisor writes: If you haven’t converted a traditional IRA to a Roth by now, you’re
probably never going to do it … right? That’s not necessarily true. In
fact, some of your clients who have been sitting on the fence for awhile
may be convinced to finally take the leap when they assess their tax
situation this year-end.
What could make this a prime time to convert to a Roth IRA is a
combination of several factors, not the least of which is your expected
tax liability for 2014 and beyond.
Here’s the crux of the matter: Assuming you have cash stashed in an
IRA -- either through previous contributions or a rollover from a 401(k)
or other plan, or both – you have to start taking out the money sooner
or later. Generally, payouts before age 59½ are hit with a 10% tax
penalty, while required minimum distributions (RMDs) must begin after
age 70½. In either event, the distributions are taxed at ordinary income
rates reaching as high as 39.6%.
Conversely, with a Roth IRA, you can continue to build up your
account without taking any lifetime RMDs. For a Roth in existence at
least five years, qualified distributions – including those made after
age 59½ -- are 100% tax-free, while other payouts may be completely or
partial free of tax under the IRS’ ordering rules.[snip] - The article continues @ CPA Practice Advisor, click here to continue reading....
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