Roth IRA Calculator

If you’ve been putting off doing a conversion to a Roth IRA from another retirement account, now is the time to do it. Roth conversions will still be available after 2010 ends, but if you do it in 2010, you will have 2011 and 2012 to pay the conversion tax. If you do it after 2010, you will have to pay all of that tax in one year. If you aren’t sure which to continue on with, you might want to check out our article on Traditional vs Roth IRAs.

For those confused about what the conversion tax is, I’ll try to explain it a little better.  With a Traditional IRA, you don’t have to pay taxes on the money that you drop into the account, but when you take the money out you’ll have to pay the taxes on it at whatever your tax rate is at that time.  With a Roth,  you pay the taxes up front and no taxes when you withdraw the money.  The conversion fee is basically making it so you pay the taxes on the money you put into your Traditional IRA, then after the conversion you won’t have to worry about any more taxation on that money.

A lot of people may think it’s silly to want to convert when you’ll have to pay fee’s right away, but most analysts expect tax rates to go up in the future so in reality you are just delaying the pain.

Here are a couple hints on whether you may want to look into converting:

• You believe your own, or your heirs tax rate will be higher in the future when withdrawing from the account.
• If you plan to pass the account down to your heirs and don’t want them paying tax on the gift.
• You don’t plan to take out any money in the next five years and is 60 years or older.
• Health does play a factor, so if you want to take the money out yourself, you should make sure you will live long enough to make up for the conversion tax.

Those are just some things that I’ve come up with, but just because you don’t match any of that criteria doesn’t mean you shouldn’t look into it further.  It’s very hard to outline a good game plan for every situation because there are so many different scenarios. Your accountant or tax planner is really the ultimate key to helping you make the final decision.

Hopefully this article gets you started on a process that isn’t exactly “fun” but very necessary.  If you need a Roth IRA Calculator or a Roth IRA Conversion Calculator, follow those links and do some financial planning.

This is a question asked by many people that are thinking about opening up their first retirement account, or possibly thinking about transferring from a Traditional IRA.  If you are unsure on which to choose, try reading our post on Traditional vs Roth IRAs.  If you have already decided on a Roth IRA and just need to know if you meet the qualifications, keep reading.

The first thing you need to know is whether you have taxable income coming in during the current tax year.  To open a Roth IRA you must have some sort of employment resulting in taxable income whether that’s working for yourself, or for someone else. Basically if you’re paying taxes on it, it’s probably covered, but we’ll cover what’s not eligible below.  The next thing you need to think about is whether that income falls between the income requirements.

Those limits are:

• $144,000 for singles filing as an individual, people that are married, but filing separate, or filing as the head of the household.
• $100,000 for people that are married, files separately, but has lived with their partner during the current year.
• $166,000 for people that are married and file jointly.

Things that aren’t covered as eligible compensation:

• Money made from dividends or interest.
• Profits made from rental properties.
• Any other money or compensation that isn’t considered income.

Roth IRAs don’t have any age requirements like a Traditional IRA so you can contribute at any age.  Also, the time of the year doesn’t make a difference as long as it’s before your tax return comes due.  One other thing that I haven’t covered is the fact that you have to be an American citizen to qualify.

Now that you know some of requirements, here’s a video that should help tie up any loose ends.

Speaking with your accountant is always advised, and they should know right away whether you qualify for a Roth IRA or not.  Retirement accounts are always changing so even if you get one started, it’s best to keep in touch with your accountant to stay up-to-date on any changes that affect your account and to re-evaluate which approach will continue to make you the most money.

Please visit these pages if you are in need of a Roth IRA Calculator, or a Roth IRA Conversion Calculator.

Opening a retirement account is one of the first things to do when starting to plan for your retirement, but many people struggle to get over the hump of actually opening an account.  It’s best to start as young as possible so you can reap the rewards that come along with retirement accounts, but there are some things you should know before starting.

The main types of IRAs (individual retirement accounts) are Traditional and Roth IRAs.  Sometimes the Traditional accounts can go by different names, but we will stick with the most common term in this article.

Since it can be confusing trying to  choose between the two, we decided to delve into the subject and try to explain the basics to give you the tools to make your own decision.  Don’t get discouraged at first if you still don’t feel like this is enough info to make a final choice.  It’s a big decision, so make sure you feel comfortable before starting it up.

Traditional – Contributions to these account are tax deductible depending on your income for the given year, but you will have to pay tax on any money you make when you withdraw the cash. That important fact is why a Traditional account can have some advantages if you feel like your tax rate will be higher now then when you’re ready to take the money out since you’d save the difference in tax rates.

You can put the money into a number of different investments once the money is in the account which is similar to the Roth, but there are no restrictions on your income with a Traditional account when depositing money into the account. You are required to take the money out of the account between ages 59 1/2 and 70 1/2. If you need to do it earlier than that, you will have to pay a 10% early withdrawal penalty.

Roth – A lot of people feel that Roth IRAs are more complicated, and that may be, but for many people they are a great option.  The biggest thing to know right off the bat is that to put money into a Roth account you have to use money that you earned, which means that you must have a source of income from employment for this to even be an option.

As mentioned earlier, you will have to pay the taxes on this money up front, aka it’s not tax deductible.  The advantage is that when you take the money out, everything you earned will be tax free.  In an age where tax rates have been increasing, most people tend to think they will be at a higher tax rate when they retire, thus choosing the Roth for the tax advantages.

Another requirement has to do with your income.  Whether or not you can deposit, and how much you can deposit, has to do with your income and filing status. This varies depending where you live so that topic spans too wide for this article.  Your accountant will be able to fill you in completely on those details.

As with the Traditional IRA, you can use your money in the Roth IRA towards most normal investments.  Including the stock market,  Deposit Certificates, Bonds, etc.

Conclusion – It’s a big decision, but any way you go is probably going to be better than ignoring your retirement.  If you have an accountant, tax adviser, or financial adviser, you should think about sitting down with them to discuss which option is best for you.  Hopefully this article has provided you with a little more background information to make the discussion a little more productive.

If you need a Roth IRA Calculator, or a Roth IRA Conversion Calculator, please visit those links and see some actual numbers based on your stats.