You're probably familiar with Individual Retirement Accounts, popularly
known as "IRAs." But did you know that recent tax law changes have created
three different types of IRAs? Today you can choose from the Traditional
IRA, Non-Deductible IRA, or Roth IRA - each of which offers unique benefits
and advantages.
The Roth IRA offers a number of advantages over its traditional
counterpart. These include:
Tax-free distributions at retirement
Ability to continue making contributions beyond age 70-1/2
No required minimum distributions beginning in the year you turn 70-1/2
Leaving assets to survivors that are free from income taxes
However, conversions from a traditional IRA to a Roth IRA are subject to
income tax since the original contributions were initially made with pre-tax
dollars. Also, your modified adjusted gross income (MAGI) must not exceed
$100,000 for you to be eligible for a Roth IRA conversion. If you believe
that future tax rates will be higher than today, then you should consider a
Roth conversion. There are no limits on the size of a conversion.
Assets converted to a Roth IRA must remain in the account for at least
five years before any distributions are taken. Otherwise, a significant tax
penalty may apply.
You'll maximize the potential for tax-free income later if you pay
conversion taxes out of pocket, rather than withdrawal them from your IRA.
If you can't pay conversion taxes without using part of your IRA funds, you
probably shouldn't convert unless you are certain you will be in a high tax
bracket during retirement.
Kelly Bissinger and Chris Jones of The Legacy Creation Network are registered representatives with Sunset Financial Services Inc., a FINRA-registered broker-dealer. Sunset Financial Services is registered to offer securities products in all 50 United States. These registered representatives are licensed to offer securities products in (Oregon, Idaho, Washington). Insurance agents are also licensed to offer insurance products in (Oregon, Idaho, Washington). The information included herein should not be considered a solicitation or an offer to sell product in any state besides those in which these representatives and agents are properly licensed.
*Securities offered through Sunset Financial Services Inc., 3520 Broadway, Kansas City, MO 64111, 816-753-7000 (Home Office). Member
FINRA/SIPC Sunset Financial Services is not affiliated with The Simmons Financial Group.
