William Peiffer

In the News… The Year of the ROTH IRA… are you the Ideal or Wrong candidate for a ROTH conversion?

Posted on 10. Dec, 2009 by Bill Peiffer in Roth Conversion, Strategic Retirement Planning

I’m sure by now most of you have at least heard something pertaining to the IRS changes related to the conversion from a Traditional to Roth IRA. By talking to people I have found most are utterly confused. Many have heard bits and pieces from the news media related to the conversion. However, they are not getting enough good information to determine if a conversion is the correct action to take in their specific situation. Here are ten simple questions to ask yourself. An honest self assessment of your specific situation should reveal if you are an ideal or wrong candidate for a Traditional to Roth conversion.

5 Signs of the Ideal Prospect for the Roth Conversion:

1) The Owner or spouse is expected to live a minimum of 10 years after the conversion. This will assure, at a reasonable rate of return, that the conversion taxes will be recouped prior to death.

2) There are sufficient Non-IRA funds available to pay the conversion tax so the taxes won’t have to be paid out of the IRA.

3) The IRA owner has enough income and will most likely not need income from his/her IRA.

4) Their goal is to pass more money to the heirs and eliminate the income tax upon distribution.

5) The IRA owner fully understands both the positive and negative tax consequences of converting to a Roth IRA.

5 Signs of the Wrong Prospect for the Roth Conversion:

1) The owner and spouse are at an advanced age or are in poor health and may not live long enough to recoup the conversion tax.

2) Their IRA represents most of the owner’s savings and the conversion tax will need to be paid out of the IRA funds.

3) The IRA owner will need income from their IRA for the foreseeable future.

4) The IRA owner’s goal is to not outlive their savings.

5) The owner has low to median low net worth and has concerns about having enough savings for a comfortable retirement.

Tags: IRA, Roth Conversion, taxes