Monday, December 23, 2013

Roth Conversions as a Year-End Tax Strategy

William Perez for writes: Individuals can convert funds in a pre-tax traditional individual retirement account (IRA) into a post-tax Roth IRA. This strategy involves paying tax on the amount of funds converted from a traditional IRA and moving those funds into a Roth IRA.
The chief benefit of converting funds into a Roth IRA is that those funds won't be taxed again when the funds are distributed later. And investment earnings can be tax-free as well, as long as distributions from the Roth IRA meet the criteria for being a qualified distribution.
The disadvantage of converting funds to a Roth IRA is that the amount of the conversion is included in taxable income, which usually means increasing the amount federal and state income tax for the year.
Deciding whether, and how much, to convert to a Roth IRA involves weighing the benefits of having retirement funds placed in a Roth account versus the tax costs that will be incurred.
To learn more about different aspects of Roth conversions:


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