Time may be right to convert to Roth IRA

Do you regularly contribute to a traditional IR A? If so, you’re taking an important step toward building financial resources for retirement.

But it’s possible that you could take an even big ger step— by converting your IRA to a Roth IRA. And you may have an especially good opportunity to make this conversion in 2010.

Before we ex ami ne why this may be so, let’s take a quick look at the differences between a traditional IRA and a Roth IRA. Depending on your income level, your contributions to a traditional IRA may be tax deductible; regardless of your income, your earnings grow tax deferred.

With a Roth IRA, your contributions are never deductible, but your earnings grow tax free, provided you’ve had your account for at least five years and you don’t start taking withdrawals until you’re 59-1/2.

Here’s another distinction between the two types of IR As: With a traditional IR A, you must start taking required minimum distributions (RMDs) when you reach 70-1/2.

But if you own a Roth IRA, you are never required to take distributions, so you can let your money grow as long as you can afford not to touch it.

Which IRA is “better”? There’s no one right answer for everyone. Generally speaking, though, the combination of potential tax-free earnings and no RMDs might make the Roth IRA an attractive choice for most people.

Additionally you have access to the money you put into the Roth tax-free and penalty-free at any time, as long as you are not withdrawing earnings.

So, if you have a traditional IRA, you might wish to convert it to a Roth — if you can. Keep in mind that any conversion will require you to pay income taxes on your pre-tax contributions to your traditional IRA and any growth in your account’s value.

Following last year’s steep market decline, the value of your IRA may be down signifi- cantly — and, generally speaking, the lower the value, the lower the tax bill upon conversion.

Beginning Jan. 1, 2010, you can convert your traditional IRA to a Roth IRA regardless of your income level. Furthermore, the income taxes due on conversion can be spread over two years — 2011 and 2012.

So contact your financial and tax advisors to determine if a Roth IRA conversion is appropriate for you. Over the next two years, you’ve got a good window of opportunity to make this move — so you’ll want to act before that window closes.

Terry Browning and Paul Dixon are your local Edward Jones financial advisors.


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2010-08-26 digital edition



The burn ban for Milam County has been lifted. Burning is always prohibited in the county's municipalities.


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