关于罗斯退休金的转换（About ROTH IRA Conversion）

2010 IRA Roth Conversion: A Second Chance

Pay tax now or later?

Converting a tax-deferred retirement plan to a Roth IRA can enable you to build tax-free wealth over the long haul. Doing so in 2010 offers advantages, but there are many factors to examine first.

This year’s anemic investment results mean your tax cost likely won’t be much more than it would have been earlier in 2010.

You must pay tax on your tax-deductible plan contributions plus earnings. But if you convert, you won’t have to pay tax on future earnings and withdrawals.

Assets converted to a Roth IRA avoid the mandatory distributions from regular retirement-plans starting at age 70-1/2. And your heirs will inherit your Roth IRA free of income tax because you’re paying it now.

In 2010 only, a Roth IRA conversion lets you split the conversion tax evenly between 2011 and 2012.

The big question is whether the benefit of future tax-free returns will outweigh the drawback of paying the conversion tax now. Ask yourself these three questions:

#1: Do you expect to be in the same or a higher tax bracket when you make withdrawals from the Roth IRA?

Paying the tax now makes sense only if your future tax rate will be at least as high as it is now.

Tax burdens are expected to start rising in 2011, particularly for high-bracket taxpayers. Or your taxable income may increase, other than from a Roth conversion. The more your tax rate increases in the future, the greater the benefit from converting now.

#2: Will you invest the Roth IRA assets for growth or total return (growth and income)?

The longer you can let your IRA grow and the greater your investment returns, the better it is to pay the tax now.

But converting is unwise if you invest primarily for income because your Roth’s appreciation in value may not overcome the negative impact of paying the up-front tax.

Financial-market returns in the future inevit-ably will play a key role in your own results.

Payouts from a Roth IRA are tax-free after the assets have been in the account for five years and after your turn age 59-1/2.

#3: Can you pay the tax due on the Roth rollover without tapping your IRA or selling other tax-sensitive assets? If not, your additional tax cost may make a conversion impractical.

Converting to a Roth isn’t an all-or-nothing decision. You might want to do it gradually instead.

For example, you could transfer just enough of your IRA to a Roth in 2010 and in future years to avoid going into a higher tax bracket.

Another approach is to practice a form of market timing by converting after significant market declines, thereby both reducing your tax liability and boosting future tax-free appreciation potental.

A Roth conversion isn’t irrevocable either: You can reverse it for whatever reason, such as if your IRA assets decline in value after the conversion or you don’t want to pay the tax now.

You have until October 15 of the calendar year after the year you converted to “recharacterize,” or until October 2011 if you convert in 2010.

You could even convert again later, possibly at a lower asset level and tax bill. You just have to wait both at least 30 days and until a new tax year.

If you convert all or most of your IRA, consider splitting it up into multiple Roth IRAs, based on asset type or some other categorization. Then, if necessary, you can undo only the Roths that lost value.

You can do a Roth rollover even if you’ve already begun IRA payouts. And, unlike with a regular IRA, Roth IRA withdrawals don’t count as income in determining whether your Social Security benefits are taxed.

If you’ve made both tax-deductible and nondeductible contributions to an IRA, you’ll owe taxes on the percentage of total IRA assets that were deductible. For example, if 80% of your IRA money is in a deductible account, you’ll have to pay tax on 80% of the balance you convert.

What to do now: Before converting to a Roth IRA, determine roughly how much your tax bill will be. The extra tax liability from converting can affect not only your tax bracket but also the impact of deductions, exemptions and alternative minimum tax on your eventual tax bill.  (From Stephen Leeb's e-mail)