This is to be exciting news for everyone with a retirement plan - starting the first month of this year, you have the option to convert your individual retirement account, or your IRA, to a Roth IRA (by the way, if that to you is exciting news, perhaps you need to loosen up). Well, those are the new rules - it used to be that you only had the option to convert if you made less than $100,000 a year, gross. Now, you have the option to convert, no matter what your income is. So does it make a lot of sense? You had better make up your mind now, because you are going to be getting those calls from financial planners asking if you've thought about it.
It would make a lot of sense for people who expect that when they retire, they'll be upgraded to higher tax bracket. What you get when you choose a Roth IRA retirement plan is, each time you make a contribution, you pay all your taxes upfront right now, and enjoy the rest of your retirement, tax-free. You get it out of the way right now. A regular IRA lets you take a tax deduction on contributions, and you also subject yourself to taxes each time you withdraw the money. But if you have been told that the benefits of a Roth IRA are limited to just the tax benefits you get, that would be an unnecessarily restricted view of it. With a regular IRA retirement, it often becomes difficult to leave your money to your children, or put money aside for emergencies. With a Roth IRA, you have to take minimum distributions as soon as you hit six months past 70. And it won't have an effect on whether they tax your Social Security benefits either, as your withdrawals are not counted as income. But there are a few exceptions; for some people, there are taxes on their benefits, or at least a certain portion of them.
In fact, doctors and high-salary individuals would do well to convert a portion of their regular IRA retirement funds, to the Roth plan. The basic decision to make in planning to convert or not, falls on making an educated guess whether or not you will find yourself placed in a higher tax bracket. The money seems to be on guessing that you will indeed find yourself placed higher, because the government is so desperate for extra funds, to support extensive Social Security and Medicare programs. It would be a good idea, financial planners say, to hedge your bets, and divide your retirement funds in different kinds of retirement investments. If you happen to make a wrong choice putting it all in one place, like a Roth IRA retirement plan, it could hit you really hard.
Converting your IRA retirement plan will only work if you have enough money to pay the taxes on conversion. And of course, if you live in Wisconsin, converting is probably not a good idea - there is a penalty. But it might be on its way out. Actually, deciding whether or not you want to convert your IRA retirement plan, is such a complicated decision, as all things involving taxes are, that getting a tax advisor would be a great idea.