Retirees are enjoying longer lives these days and a post-retirement conversion to a Roth IRA could have advantages for specific investors.
A Roth IRA Conversion in 2011 can be a good personal savings transaction almost anyone interested in the benefits of the Roth IRA:
- tax free withdrawals
- no required minimum distributions
The Roth IRA Conversion for 2011 can also benefit a upon the retired investor. Because there are no IRA minimum distribution requirements, Roth IRA assets can be invested for a longer period of time and thus have more time to create a nest egg for "old" old age. For a recent retiree, that may mean your assets might have 20 or 30 years to grow on a tax-free basis.
Even so, you must weigh the benefit of tax-free treatment against the costs of the Roth Individual retirement account Conversion in 2011. Furthermore, a Roth Individual retirement account conversion generally works best whenever an investor has a longer investment time horizon.
Most every mutual fund web site has an Roth IRA conversion calculator to help you see the financial impact of a Roth IRA Conversion 2011. But here are the general rules. Generally, you ought to only consider a post-retirement Roth conversion when you've got assets outside your conventional IRA to pay the taxes incurred by the conversion. For example, if you convert a $200,000 IRA, and assuming a combined federal and state tax bracket, you will owe $60,000 in tax. If you might end up paying more income tax on the Roth IRA Conversion 2011
than you would if you keep the assets in your classic IRA for withdrawals later, then a Roth IRA conversion most likely are not in your best interest. In other words, if you feel confident that your required withdrawals from your existing IRA may only be taxed at 15%, it would be foolish to convert and pay the 30% rate. Note that you must factor in the time value of money and if that is something you don't understand, consult a retirement consultant.
If you have your Roth IRA conversion 2011 after age 70½, you need to take one last required minimum distribution from your traditional IRA for the year in which you perform the conversion. The remaining assets inside your IRA are then ready for a Roth IRA Conversion 2011.
Although distributions from a Roth IRA conversion 2011 typically come out tax-free, there is a small catch. The amount you converted can be taken at any time tax free, but to also withdraw earnings tax free, you must satisfy a five-year having period from the date you made the conversion. This holding period requirement usually has no impact as the first money you withdraw from a Roth IRA is considered principal and not earnings. Therefore, within 5 years of your conversion, unless you earn a very high rate of return, most of your account will be principal and not earnings.
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If you do not do any of these correctly:
- Opt for a distribution rather than direct transfer
- Rollover company stock to an IRA
- Choose to rollover to a Roth IRA
- Rollover to your new employer’s 401k
- Rollover post-tax contributions
This is just a thought, but post retirement conversions may create the exact tax liability that the retiree is trying to avoid by having money in the Roth account. It might be best to allow retirement assets to grow tax free in the traditional IRA or 401k, then transfer the money over to the Roth when mandatory distributions begin at age 70.5.Since the money will be distributed in smaller chunks, the tax liability will be far lower than taking it in a lump sum conversion. As the money is shifted to the Roth, it can do it's work of continuing to grow tax free for the rest of your life.