Should You Rollover to a Roth IRA?
Why convert regular IRA to a Roth IRA?
The principal advantage of the Roth IRA is that qualified distributions will be tax free. Funds withdrawn after 5 years and after age 59 ½ or for certain special purposes are qualified distributions. For tax years beginning of up to 2000 of compensation to a Roth IRA. Also, IRA investors with AGI of less than $100,000 can convert all or part of their existing IRA funds into the new Roth IRA. However, the investor must pay income taxes on the taxable portion of the converted funds.
We will calculate the future value of tax deferred accumulation amounts in a regular IRA and a Roth IRA. If the taxes due from conversation are paid from separated funds, then we assume that for comparison purposes the tax mount is invested in a taxable savings account and allowed to grow at the same rate as the IRA.
We then calculate the tax - free withdrawals from the Roth IRA and the after - tax withdrawals from the regular IRA and the tax savings account. The difference of these two cash flows is an indication of the relative advantage of the two choices.
Comparing the Roth IRA with other IRA choices
The principal advantage of the Roth IRA is the qualified distributions will be tax-free. Funds withdrawn after 5 years and after 59½ or for certain special purposes are qualified distributions. For tax years beginning after 1997 taxpayers may make annual nondeductible contributions of up to $2,000 of compensation to a Roth IRA. Also, IRA investors with AGI of less than $100,000 can convert all or part of their existing IRA funds into the New Roth IRA. However, the investor must pay income taxes on the taxable portion of the converted funds.
We calculate the future value of tax deferred accumulation amounts for a deductible IRA, nondeductible IRA, and a Roth IRA. We will assume that for comparison purposes the taxes saved with a deductible IRA are placed in a deductible IRA plus the tax savings account, and the nondeductible IRA. A comparison is also provided for funds placed in an ordinary savings account without the tax advantages of the IRA. The difference of these cash flows is an indication of the relative advantage of the four choices.
For 1998, contribution to deductible or non-deductible IRA's will phase out at AGI of $30,000 to 40,000 for single taxpayers and $50,000 to $60,000 for joint filers. The Roth IRA will phase out at $95,000 to $110,000 for single and $150,000 to 160,000 for joint filers.
Do not enter into transactions solely for the tax benefits. All investments should be economically sound. There are those who will sell you so-called tax solutions. Analyze such options carefully.
The principal advantage of the Roth IRA is that qualified distributions will be tax free. Funds withdrawn after 5 years and after age 59 ½ or for certain special purposes are qualified distributions. For tax years beginning of up to 2000 of compensation to a Roth IRA. Also, IRA investors with AGI of less than $100,000 can convert all or part of their existing IRA funds into the new Roth IRA. However, the investor must pay income taxes on the taxable portion of the converted funds.
We will calculate the future value of tax deferred accumulation amounts in a regular IRA and a Roth IRA. If the taxes due from conversation are paid from separated funds, then we assume that for comparison purposes the tax mount is invested in a taxable savings account and allowed to grow at the same rate as the IRA.
We then calculate the tax - free withdrawals from the Roth IRA and the after - tax withdrawals from the regular IRA and the tax savings account. The difference of these two cash flows is an indication of the relative advantage of the two choices.
Comparing the Roth IRA with other IRA choices
The principal advantage of the Roth IRA is the qualified distributions will be tax-free. Funds withdrawn after 5 years and after 59½ or for certain special purposes are qualified distributions. For tax years beginning after 1997 taxpayers may make annual nondeductible contributions of up to $2,000 of compensation to a Roth IRA. Also, IRA investors with AGI of less than $100,000 can convert all or part of their existing IRA funds into the New Roth IRA. However, the investor must pay income taxes on the taxable portion of the converted funds.
We calculate the future value of tax deferred accumulation amounts for a deductible IRA, nondeductible IRA, and a Roth IRA. We will assume that for comparison purposes the taxes saved with a deductible IRA are placed in a deductible IRA plus the tax savings account, and the nondeductible IRA. A comparison is also provided for funds placed in an ordinary savings account without the tax advantages of the IRA. The difference of these cash flows is an indication of the relative advantage of the four choices.
For 1998, contribution to deductible or non-deductible IRA's will phase out at AGI of $30,000 to 40,000 for single taxpayers and $50,000 to $60,000 for joint filers. The Roth IRA will phase out at $95,000 to $110,000 for single and $150,000 to 160,000 for joint filers.
Do not enter into transactions solely for the tax benefits. All investments should be economically sound. There are those who will sell you so-called tax solutions. Analyze such options carefully.
There are other tax-cutting strategies in addition to those mentioned here. If you would like assistance in selecting tax-saving strategies that make the most sense in your situation, contact us today!