Roth IRA Conversion
There are many issues to consider before converting. A great deal of people will benefit from conversion but it may not be feasible or recommended for everyone. It is important to talk to a professional who is knowledgeable about conversions before jumping in and/or just calling the institution where your money is at. Financial institutions have lower-paid young clerks manning their phone banks and you're not going to get professional advice by calling them.|
At PGA Financial we are trained in the implications of converting to a Roth IRA and we also work with tax attorneys and CPA's or EA's to ensure that clients are getting the best advice. If you meet with us, we will likely work with your tax preparer to make sure it is advisable for your situation. Most tax preparers are not aware of all that is involved, but working in conjunction with a IRA Rollover and Distribution Specialist from PGA Financial makes for a good team.
All other things being equal and if the person has the money to pay the income tax that will be required, perhaps the biggest issue might be the future of tax brackets. Historically, tax brakets are very low right now and all indicators point to them going up drastically in the future. One only has to look at how much new spending the government is doing on top of all the debt already amassed, and consider the Social Security and Medicare costs that will rise from of all the baby boomers retiring.
The probablity of tax brackets going up is significant. If you convert to a Roth IRA now and pay the taxes while you are in a lower tax bracket then later on when you take distributions they will be tax free! You won't have to worry about the higher tax bracket you'll likely be in then.
Below are some links that address this issue:
The first is a link to an 11 minute segment of the CBS 60 Minutes show. It features an interview with David Walker, who as 60 Minutes put it "Is a prudent man and a highly respected public official." As comptroller general of the United States he runs he Government Accountability Office, (the GAO), which audits the government's books and serves as the investigative arm of the U.S. Congress. He has more than 3,000 employees, a budget of a half a billion dollars, and a message he considers urgent.
CBS Special: U.S. Heading For Financial Trouble?
And remember, that segment was from 2007, before all the new Obama spending. It doesn't bode well for tax brackets staying lower.
The next link is to a report showing the history of tax brackets. Look at the 2009 rates, and then go to page 9 and look at the 1980 rates, and then go to page 29 and look at the 1956 rates when the highest bracket was 91%!!!! Even if you are married, also look at the single rates because your spouse could pass away at some point and you need to understand what the single rates might be in the future as well.
Tax Bracket History
Pretty frightening isn't it? If you look at the above evidence alone, it is a powerful argument for converting to a Roth IRA and getting tax free withdrawals in the future.
Some of the other issues are:
- Roth IRA's don't require RMD's
- Roth IRA distributions don't afffect Social Security benefits, whereas traditional IRA distributions can cause Social Security benefits to be taxed.
There are other issues such as that a partial conversion may be much more advantageous than a full conversion. And more! You first have to get all of the facts as they apply to your specific situation.
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