How to Convert a Traditional IRA to a Roth IRA

When you are looking to invest for retirement, your IRA will almost definitely come into play.  Many people initially choose a traditional IRA, looking at the tax-deferred status as the best overall option.  After all, with this investing method, you don’t pay any taxes on your contributions until you take them out.

Of course, at retirement, you pay taxes on both your contributions and your earnings.  With a Roth IRA, you pay taxes on your contributions, but when you cash in, you don’t pay any withdrawal taxes on contributions or interest gained as long as you are at least 59 ½ and have had the IRA for 5 years.

With this in mind, it is easy to see why many are starting to view the Roth IRA as a better form of investing.  The good news is that you can convert a traditional IRA to a Roth IRA.  The catch is that you will first need to pay taxes on your contributions.  This means that you need to take a look at the numbers and try to determine if this will cost you more of your investing dollars than it will save in the long run.

When you decide to convert your retirement investing to a Roth IRA, you will find that the process is pretty simple.  Most retirement planners can help you make this step.  The problem arises if you need to take money from the retirement account to pay the taxes, which will also trigger a 10% early withdrawal penalty for anyone not yet 59 ½.

Investing is tricky when you get into technicalities, but it may be a good idea to look into converting your IRA to a Roth IRA.

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