You could be spending a lot of time with your 2012 taxes this month. While you're at it, consider your tax picture for retirement—and whether converting your traditional IRA to a Roth IRA might improve it.
"The Roth offers a great deal of flexibility," says Steven Weisman, an estate planning attorney and lecturer at Bentley University in Waltham, Massachusetts. "It provides tax-free retirement income, and you can decide whether to take withdrawals or not. For younger people especially it's a great idea."
Although contributions to a Roth IRA are not tax deductible, the money withdrawn from them is tax-free—meaning you'll never be taxed for the investment earnings in the account.* And unlike traditional IRAs, Roths don't require minimum distributions starting at age 70½, so you won't have to withdraw the money if you don't need it.
To contribute to a Roth IRA in 2013, you must have an adjusted gross income of less than $125,000 if you're single, or $183,000 if you're married and file taxes jointly. These income limits don't apply to Roth conversions, though, so anyone with a traditional IRA can make the switch.
But converting has a cost: income tax on some or all of the amount rolled into the Roth IRA. If you can't pay the tax bill in cash, a conversion probably isn't the right move. If you can, it's worth considering.
Consider a Roth if any of the following describes your situation:
A SunTrust Financial Advisor can help you decide if converting is right for you. Find one near you today.
*Withdrawals of earnings are tax-free as long as you are age 59Â½ or older and have held the account at least five years.
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