A lot of interest has been generated about the ROTH IRA conversion opportunity available for all IRA account holders starting in 2010. As with most financial opportunities, there are several benefits to the conversion, as well as some potential pitfalls. It is important to remember that every situation is unique, and you should consult a knowledgeable financial professional if you are unsure if this strategy is right for you.
Up until this year, if you had a modified adjusted gross income greater than $100,000 or were married and filing taxes separately, you did not qualify to convert a Traditional IRA to a ROTH IRA. Some of the advantages being touted are that current tax rates are at historically very low levels and with the stock market down from historical highs, it is super attractive to convert. In addition, ROTH IRAs do not have a Required Minimum Distribution (RMD) requirement like Traditional IRAs and you withdraw the money tax free after 59.5 years of age (assuming you meet the required five-year holding period).
All of these benefits seem to make this opportunity too good to pass up. However, according to a recent Dow Jones article, there are a number of potential unintended tax traps that “may make you reconsider when to convert, how much to convert, or even if you should convert at all.”
Click on the link below to read the article on the Financial Adviser magazine Web site.