I’m Kim Lankford of Kiplinger’s with the key strategy that can help you stretch your retirement
savings. For the Chinese 2010 is the year of the tiger, for Americans it might be called the year
of the rock because starting this year anybody can convert you traditional IRA to a Roth IRA.
The old $100,000 income limit for converting disappeared on New Year ’s Day. Although you
have to pay tax as sooner rather than later on the converted amount, here is the big pay off down
the road. You will be able to withdraw all the cash and all of future earnings tax free in
retirement.
Sure the price admission to a Roth can be stiff, your old tax and all the money you convert
except for any none deductible contributions you might have made to your traditional IRA. But
you don’t have to pay the tax on months. If you convert this year you can spread the tax bill over
you 2011 and 2012 tax returns. This can give you time to save money to pay the tax bill so you
won’t have to tap the IRA to pay the tax. You want to avoid that if you can because and IRA
money use to pay the tax bill will be tax itself and clip with the 10% penalty if you’re under age
59 and half. Rather than spread out the tax bill you have the option of paying it in full with your
2010 return which could make sense for higher owners because top tax rates may increase if the
they push tax cuts expires at the end of this year. Converting to a Roth clearly make sense on the
long run if you are not low tax bracket now and expect to face a higher tax retirement. Even If
you will face the same rate tax repay out and retirement and other advantage is ever rock and
make thing the price for conversion one of the best investments you will ever make. For more
information about whom can benefit from a Roth conversion see our Roth conversion special
report at Kiplinger.com/report/roth-ira.
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