5 Reasons You Should Consider a Roth IRA

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Your point above current tax rates and putting money in to a Roth IRA now to avoid paying taxes later works great. As far as I understand, contributions to a Roth IRA (the $5000) a year are made from after-tax income right?
Individuals with modified adjusted gross incomes below $100,000 who do not have an IRA can roll the after-tax money from their qualified retirement plan into a traditional IRA. In this instance, the IRA would be funded solely with after-tax contributions. This type of IRA is sometimes referred to as a nondeductible IRA.4 Once this IRA is established, it is then possible to convert it into a Roth IRA http://www.definerothira.com
In this example, the only money we are rolling over is the after-tax portion of the retirement plan. If the entire retirement plan were rolled into an IRA, the IRA would contain both pre-tax and after-tax portions. After-tax amounts in an IRA are referred to as its "basis." In this case, the basis of the IRA is equal to its total value. Since taxes have been paid on the full amount of this nondeductible IRA, there will be no additional tax upon conversion to a Roth IRA.

Ebrahim of CO 2:15PM September 08, 2010

Instead of converting, gift what you don't need from your Minimum Re1uired Distribution for living expenses to your adult children and their families. They can then invest in Roth IRA's without paying income taxes in the future

Alfred Hahn of PA 12:58PM February 18, 2010

What people don’t understand is that interest earned in a Roth is free…You loose the deduction that you may receive from a tradition IRA but free is better than owing down the road…

Wilbur of CT 11:39AM February 17, 2010

The writer's points are all good, but still one needs to know what they are doing before acting. It is almost always questionable to convert if you have to take money out of your IRA to pay the income tax due. Also if you are in the 10-15% tax brackets and can project your income and deductions ahead, it is better to space the conversions over several years to keep from getting into the 25 percent bracket for some of your income (ie, the conversion).
A real sleeper pitfall is if you are or are going to be drawing social security and you are in a lower tax bracket, the you may have to pay tax on both the conversion and a substantial amount on your social security benefit - meaning you will be taxed at a double rate. On the other hand, if you are in that bracket when required minimum distributions (age 70 1/2) are required, you will then pay the "double taxes" for the rest of your life. But then that can be avoided by going ahead and being more agressive in your conversion timing.
Ideally you may be able to convert some each year without going into the higher tax bracket.
One more caution - a conversion will probably be income with no withholding. Particularly after the first year one needs to handle estimated tax payments according to IRS requirements during the calender year to avoid an underwithholding penalty.
I'm 66 years old and am using all of the above in my tax minimization strategy.

Tallhassee Retiree of FL 2:36PM February 16, 2010

I was audited last year and it was the worst experience of my life.

Nina of KY 9:19AM February 16, 2010

Even your correction isn't correct! If you take advantage of the 2010 IRA conversion you include half of the amount in each of your 2011 and 2012 returns thus you PAY the tax in 2012 and 2013. Do some homework for crying out loud. I'm not a journalist and I'm not a CPA but I can read what the IRS website says in about 2 minutes and figure out you don't have a clue what you're talking about. Good luck maintaining your job in this economy.

NotEvenaCPA of OK 11:20PM February 15, 2010

The article is obviously full of inaccurate information and generalities; however, Roth IRAs do have great benefits if you plan to hold them over time AND/OR plan to pass them on to beneficiaries.
The opposing argument for Traditional IRAs is that you pay taxes on what you take out (principle and gain). The key with Roth IRAs is that you pay taxes on what you put in, but what you take out (principle and gain) is tax free given you meet all the requirements...Roth held for 5 years AND age 59.5 or older.
Each person's situation is different, so talk to a tax professional about your specific situation.

Dan of MO 11:43AM February 13, 2010

All these scenarios are predicated on one huge assumption. The assumption here is that the Feds won't change the rules after the fact.
The Feds already have a track record of rewriting the rules mid-stream. You need look no further than at Social Security benefits becoming taxable under the Clinton administration, the "pushing out" of the retirement qualification age, or the dynamic rewriting of bankruptcy laws that favor unsecured creditors over secured creditors (look at the shaft that GM/Chrysler secured creditors got!) or Congress' love affair with passing retroactive tax increases.
To be overt: who is to say that Roth funds won't suddenly become taxable via some sort of means test?
I think the best advice is to take the bird in the hand. In other words, stick with what gets you a guaranteed tax break today cause you can't depend on getting the perceived tax break that far "down the road."
Caveat emptor!

tulsacharlie of TX 8:09PM February 11, 2010

What Andy said.

Ed of VA 2:38PM February 11, 2010

you have incorrect info in your article.....you have 2 options for paying the taxes of a conversion.....1) you can have the entire amount taxable for 2010 or 2) you can split the tax liability over 2011 and 2012....not 2010 and 2011.......Wow, check pub 590

Andy of TX 2:03PM February 11, 2010