Beginning in 2010, there will be no income restrictions on converting Traditional IRAs and/or employer-sponsored retirement plan, such as a 401(k) to Roth IRAs. As a result, many individuals who weren’t previously eligible may now be able to benefit from the tax advantages of a Roth IRA. A Roth IRA has the potential to grow tax deferred and produce tax-free income in retirement.
There are potential trade-offs to consider— the key one is that a conversion requires an up-front tax liability. However, for conversions in 2010 you can defer the tax payment and pay them in equal installments in 2011 and 2012. There are other circumstances that could make the conversion beneficial as well, but it all depends on your current financial status and your individual retirement strategy.
So how do you know whether the Roth IRA conversion is right for you? In addition to your tax advisor, a Merrill Lynch financial advisor can help provide the guidance and advice you need to determine if a Roth IRA conversion may be advantageous for you.
