Are you investing in a Traditional IRA or Roth IRA?
You can put money into a Roth IRA and earn tax free income when you withdraw money at retirement, but you pay taxes now. A Traditional IRA defers taxes until you begin withdrawing, usually at retirement.
Because ROTH IRA’s allow people to withdraw money at retirement tax free, many investors have converted from Traditional to Roth IRA.
Starting in 2010, anyone can convert a Traditional IRA to a ROTH IRA, regardless of income. Previously, there were income limits on high wage earners who wanted a Roth IRA. Plus, in 2010 only, taxpayers can defer taxable income to their 2011 and 2012 tax returns, in a fifty-fifty split.
There is a lot of confusion among investors when it comes to Traditional IRA’s and Roth IRA’s. The biggest perceived drawback to a Roth IRA is the need to pay tax sooner and (potentially) in larger lumps.
In a Traditional IRA a client receives tax-deferred growth and can take taxable distributions in retirement. Basically, you deduct your contributions now and defer taxes to later.
The law now allows you to convert your Traditional IRA to a Roth IRA.
Should you convert your Traditional IRA to a Roth IRA? Should you convert all or part of it? Those are questions best answered by your financial planner but they are valid questions that need asked.
If you currently own a Roth IRA talk with your financial consultant whether converting out of a Traditional IRA makes sense for you. When you convert, you likely will owe taxes. Will paying this tax now versus at retirement make sense for your situation?
Our insurance agency does not sell or offer any securities products, including IRA’s. This article is for educational and informational purposes only.
However, if you want a quote for a FIXED ANNUITY, call our office at (480) 659-0229. For Phoenix Life Insurance visit, click this link.