December 15, 2009


There has been A LOT written in the past few weeks in financial publications regarding the opportunity for those that have been previously unable (because of income restrictions) to take advantage of Roth IRAs to now convert retirement savings (regular IRAs) into the tax free growth provided by the Roth IRA. Although the income limits on contributing to a Roth account will not go away next year, the limits on converting to a Roth will. The upside to doing so could be substantial -- tax free account growth and no required minimum distributions at 70 1/2 most notably. The decision, however, will ultimately be a personal one, dependent upon your financial situation. There are no "blanket" answers.

Some food for thought... Is it right for me?
- Do you think your tax rate will be higher (or lower) in retirement?
- Can you pay the tax 'bill' with money outside of the retirement assets?
- How long will the money be left in the Roth account to grow?
- Are your current retirement account values depressed?
- Do you have heirs you would like to leave tax free money?

Given an option that financial professionals know will likely be a wildly popular opportunity, many firms have already established helpful educational resources (including calculators) on their websites to help you dissect the issue and better understand the potential costs and benefits of the Roth Conversion. Here are a few to get you started.

Roth Conversion Resources.
---> Fidelity Resources
---> Roth Conversion Calculator
---> Schwab Resources
---> Vanguard Resources

Assuming you're not one of the 13+ million Americans that will find the Roth Conversion information applicable, perhaps you will be eligible for the TAX SAVERS CREDIT. This credit for qualified retirement savings contributions is available to people earning less than $27,750 in 2009 ($55,500 if married filing jointly). Instructions for determining eligibility and calculating the value of the credit can be found on IRS Form 8880. The savers credit reduces your income tax dollar for dollar (not less than zero, however). You can receive a credit of up to $1,000 ($2,000 if married filing jointly). Contributions to most retirement plans are eligible for the credit. The IRS has developed a brochure that outlines the details of the Tax Savers Credit.