Issue Date: November 16, 2008
MoneySmart |
SHARON EPPERSON |
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Give Roth IRAs another look
Ask your tax advisor if a Roth IRA makes sense for you.
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The stock market carnage likely has hit your retirement account, but paying less tax on your savings may help resuscitate your nest egg.
If you make less than $100,000 a year, consider converting your traditional IRA to a Roth IRA. You will have to pay a one-time conversion tax on your federal tax return, but you aren't dinged the 10% early withdrawal penalty. And contributions and earnings can be withdrawn tax-free after age 59 1/2 (for accounts that are at least 5 years old), making it great for long-term savings in this economy.
"Stock values are so low right now," says Ed Slott, author of "The Retirement Savings Time Bomb" ... and How to Defuse It. "If you convert to a Roth now, then when the market comes back, those gains will be tax-free forever."
Barry Glassman, a certified financial planner with Cassaday & Co., says he sees clients every year whose deductions exceed their income. His suggestion for people in that situation (for example, if you recently lost your job): Consider converting a portion of your IRA to a Roth IRA. "That way," he says, "you could incur additional income without any great additional tax consequence."
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