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Traditional Ira to Roth Ira - Why Convert?

Converting Traditional Ira to Roth Ira is not difficult at all but you have to know what the rules are because failure to observe them may lead to losses.

There are many reasons as to why one may wish to change Ira plan. They key is in understanding what the advantages are to each type of individual retirement account.

Traditional Iras are tax deductible plans, meaning that once it is mature you will be taxed on it as you withdraw your funds. If you will be paying less tax at that time, this can be a good thing. As long as you do not withdraw your funds you will not be taxed on any interest accrued from your investments.

In a Roth Ira you pay your taxes up front, but do not have to pay taxes when you withdraw your money when you retire. If you expect to have high taxes at that time this can be a good thing.

The process of converting a traditional Ira to a Roth Ira is known as a rollover. One of the main advantages that a Roth Ira has over a traditional one is that it has no limits on withdrawals.

A Roth Ira is most convenient for retirees and for those who wish to pass their assets on to their children. This is due to the fact that a Roth Ira does not limit the amount you can withdraw each year while the traditional Ira does.

There is no minimum age for withdrawal of Roth Ira funds. Traditional Ira funds can not be withdrawn until you are at least 70.5 years old, which allows the money to remain untouched for a longer time and thus accrue more interest.

Bear in mind though that you will need to pay taxes on the Ira portion of your retirement package once you decide to make the roll over except if you made non-deductible contributions into the traditional individual retirement account that you are converting.

A Roth Ira is a good shelter if you have a big enough estate as you can include it and in this way you will have access to more of it or your heirs will instead of a traditional Ira where estate and savings will be taxed at withdrawal or distribution.

With the traditional Ira the estate will be put together with the Ira savings and taxed as income tax and you will be forced to make withdrawals as from the age of 59 .

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