Prior to 2010, Roth conversion were subject to a $100,000 AGI limit which prohibited some from taking advantage of the tax free growth of a Roth IRA. Since that restriction was removed, Roth conversion have become increasingly popular. Tax rates, historically remain at very low levels enticing many to opt to pay their taxes in today’s dollars and let the rest earn and grow tax free until they retire. Another benefit of the Roth IRA, when owners reach age 72 they are not subject to required distributions, they may choose to take distributions as needed but do not have to satisfy the same IRS rule that traditional IRA owners do. Keep in mind Roth conversions are always taxed based on the year in which the funds were converted. That means December 31st is the deadline for each year as opposed to the April 15th contribution deadline.
It is important to note that there are different rules for Roth distributions that depend on many factors, consulting a financial professional is recommended to make sure you weigh the pros and cons of such a decision. The advisors at Financial Directions are available to assist should the need arise.