New opportunities arise for Roth IRA conversion

Apr 9, 2010 2 min read

The income restrictions have been lifted for individual investors looking to convert their traditional individual retirement accounts to Roth IRAs,

according to Edward Jones financial advisors in the local community.

Previously, investors with an adjusted gross income of more than $100,000

(filing individually or jointly) could not convert to a Roth IRA from a

traditional IRA.

Investors who own a traditional IRA make contributions that may be

tax-deductible, depending on their income levels. Traditional IRA earnings

grow on a tax-deferred basis.

This means your money has the opportunity to grow faster than it would if

it were placed in an investment on which you paid taxes every year.

On the other hand, Roth IRA contributions are not tax-deductible, but

earnings grow tax free, as long as the investor holds the account at least

five years and doesn’t start taking withdrawals until at least age 59-1/2.

Investors have more flexibility and freedom when it comes to taking

withdrawals from a Roth IRA, the financial advisors say.

Unlike a traditional IRA, a Roth IRA does not require distributions when

one reaches 70-1/2.

Investors will have to pay taxes when they convert to a Roth IRA. A

conversion is usually reported as income for the tax year the conversion

takes place. However, in 2010 only, your conversion amount will be split

and reported as income for tax years 2011 and 2012 unless you elect to

report the entire conversion amount on your 2010 taxes.

Whether or not investors decide to convert to a Roth IRA, they should

first consult with their tax advisors.