Regular readers of personal-finance blogs are well-aware that they should have a Roth IRA, a type of retirement account funded by after-tax dollars that lets your savings grow tax-free. With all their money-saving benefits, Roth IRAs seem to be as popular a topic on money blogs as avoiding the ubiquitous $4 latte.
Even still, most young people are unaware of the advantages of letting retirement savings grow tax-free. And among those who do understand the benefits of a Roth account, it can be tough to give up the tax savings of contributing to a traditional IRA or 401(k), since those accounts lessen the tax burden in the present.
If you’re unsure whether your tax situation justifies converting a traditional IRA to a Roth, this online evaluation by Fidelity can help you determine which move is the right one for you by estimating what paying taxes on that money now could mean for the future. Even if you out-earn the income requirements, this applies to you, too: In 2010, the law will temporarily allow high-earners to convert a traditional IRA to a Roth IRA.
Don’t you just love it when someone else does the math for you?
One Comment
You should think long and hard about converting, and truly consider it when you can pay the tax bill out of pocket and not by cashing in your traditional IRA. Not only will you be paying taxes, but you will be paying penalties if you are not 59 1/2 years old.