Is it Time To Convert To A ROTH IRA?

Is it Time To Convert To A ROTH IRA?

June 25th, 2013 // 4:41 pm @

Do you know you don’t pay income tax on any earnings on a Roth IRA when they’re withdrawn if the Roth IRA has been in force for five years and you are 59 1/2 or older?

Talk to your Horace Mann representative to see if now may be the time for you to consider converting some or all of your eligible retirement plans to a Roth IRA.

What does it mean to convert to a Roth IRA?

Simply put, converting to a Roth IRA means taking money that is currently in a tax-deferred retirement plan and putting it into a Roth IRA, which is not a tax-deferred retirement plan.

Is there a benefit to converting to a Roth IRA?

In addition to the potential for income-tax-free earnings mentioned previously – unlike a traditional IRA – there isn’t an IRS-required minimum distribution at age 70 1/2.

How does a converison to a Roth IRA impact my taxes?

Because you are moving money from a tax-deferred plan to one that is not tax-deferred, you will be required to pay taxes on earnings and pretax contributions that you convert instead of deferring that tax payment until you withdraw the money.

What type of tax-deferred plans can I convert from?

Yon can do a full or partial conversion from a traditional IRA to a Roth IRA. And, if you have a qualifying event, you may convert from another tax-deferred retirement plan such as a 403(b), 457(b) or a 401(k).

Should I convert to a Roth IRA?

Depending on your exact situation, the benefits may vary. Here are scenarios that may help bring to light some of the more common benefits:

  • You may be in a lower tax bracket now than you will be at retirement, meaning you’ll pay taxes at a lower rate by doing it now.
  • By paying the income taxes on the money now, your assets could be passed on to heirs income tax free.
  • You may do a partial conversion, meaning only move a portion of your tax-deferred money into a Roth IRA and “split” your tax burden. Another way of saying it: pay some now – on the amount converted; pay some later – on the amount remaining in the tax-deferred retirement plan.
  • If you believe that income tax rates are going to increase over time, you may want to convert before tax rates increase.

If I’m thinking about converting, is there a potential “down side” I need to consider?

You’ll want to have answers to the following questions first:

  • Do you have the ability to pay the income taxes due on the conversion amount?
  • Will converting push you into a higher tax bracket?
  • If you are or will be receiving Social Security, will a conversion cause some of your Social Security Benefit to be taxable?
  • Will you need access to the converted funds in the next five years?
  • Will your age have any impact on your conversion? Specifically, tax implications may be different for those older than 59 1/2 than they are for those younger than 59 1/2.

You should consult a tax professional for advice on these and other possible questions.

I’m ready to talk about converting to a Roth IRA. What do I do now?

Ask your Horace Mann representative about a Roth IRA underwritten by Horace Mann Life Insurance Company.

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