Reasons Why Investors Should Convert To A Roth IRA in 2010

ST. LOUIS, Feb. 26 /PRNewswire/ -- Financial blog ChristianPF.com released an article discussing the question of whether investors should convert to a Roth IRA in 2010. As many already know, one big change for 2010 is that anyone can convert to a Roth regardless of income level. Previously, if you made over $100,000 you could not convert to a Roth. If you convert your IRA to a Roth in 2010, you now have a choice to pay all of your taxes in 2010 or average the taxes owed on the conversion over two years (i.e. pay in 2011 and 2012). Uncle Sam is giving you a choice on when you pay your taxes.

An excerpt from the article...

So 2010 is upon us and there is a lot of controversy regarding whether folks should convert their Traditional IRAs to a Roth IRA. Some of you might be wondering what exactly is a Roth IRA, well, here's the basics:

A Roth is funded with after-tax contributions; the money grows tax-deferred; and withdrawals are TAX FREE! In other words, you use money you've already paid taxes on to fund the Roth, and provided you meet certain qualifications you never have to pay taxes on that money again!

Should You Roth It?

Back to the question at hand. Should you convert to a Roth IRA or not? Usually the answer to such questions is "it depends." This might be a great year to convert your money to a Roth and potentially pay lower taxes than you would normally if you are in a lower bracket due to retirement or a layoff and you've got some cash on hand to cover your taxes!

This is important because if you are under 59 1/2 and use your IRA to pay the taxes on the conversion you'll get whacked with a 10% penalty on top of the taxes!

Also, although the markets have rebounded significantly, account balances are still off their 2007 highs. If you convert when accounts are lower, it will result in less overall tax paid plus all the earnings and growth will be tax free!

Factors to Consider

• Do you have money to cover your tax liability? Having cash on hand to cover your taxes will help soften the blow.
• Will the money you convert push you into a higher tax bracket? If so, you probably don't want to do it.
• Do you have non-deductible contributions in your IRA? No taxes are due on the non-deductible portion. *There are some additional factors to consider here that go beyond the scope of this post.
• Are you planning on applying for financial aid for yourself, your spouse or your child? Better think twice about the conversion – conversion income counts on your application.

Read the full article: http://www.christianpf.com/should-you-convert-to-a-roth-ira-in-2010/

SOURCE ChristianPF.com