Should you convert your IRA to a Roth IRA

What’s New? Effective January 1, 2010 conversions from a traditional IRA to a Roth IRA are no longer limited to the taxpayers with a modified adjusted gross income of $100,000 or less. Married couples who file separately can have a conversion as well.

What are the tax consequences of converting? You may owe income taxes on all or a portion of the amount converted depending on whether or not you made deductible or nondeductible contributions from your traditional IRA. However, you may select to include the conversion on your 2010 tax return or split it equally between 2011 and 2012.

What are potential advantages? Distributions from a Roth IRA are tax-free if you are age 591/2 or older and have held the account at least five years. You are not required to take minimum distributions at age 70 1/2. Beneficiaries can receive the assets tax-free.

What are potential disadvantages? Tax bracket now versus tax bracket later. Younger than 59 1/2 could pay a 10% penalty.

Be sure to consult with your Financial Advisor and your Tax Professional as to how a conversion may benefit your personal situation.

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