To convert or not to convert - The ROTH dilemma

When Public Law 105-34 was adopted in 1996, who knew that it would cause so much consternation among seniors and retirees? This is the law that created the ROTH IRA. Senator Roth, in my opinion, did all Americans a favor by sponsoring and shepherding his brain child to passage. Since the ROTH is a late-comer to the retirement savings table, many of us had already built up substantial assets in other types of "pre-tax" retirement vehicles such as Traditional IRAs, 401(k)s, and the like. In promoting these pre-tax plans, employers and tax accountants extolled the virtues of investing pre-tax dollars for retirement. We heard about all the advantages... current year tax savings, tax-deferred growth... it was all just a dream come true. Now, with many of us either past or approaching the magical age of 59 1/2 (I wonder which Ways and Means committee staffer came up with that number?), we are faced with real decisions regarding those little nest eggs.

Once we really start focusing on our retirement account, we quickly discover that the first "myth" about tax-preference savings begins to melt away. IRAs actually used to be marketed by telling us that we would be in a lower tax bracket at retirement than we were while we were saving all that money. The reality is that, by the time, we hit retirement age, many of us no longer benefit from the same types of tax deductions we used to enjoy during the working years. High mortgage interest deductible as an itemized expense, child tax credits, education credits and, yes, even for contributing to IRAs! Most of those deductions have long since passed, leaving us with a HIGHER tax bracket in retirement. Facing this unforeseen dilemma, we turn to IRA planning to find a way out of the mess we voluntarily put ourselves into.

Many of my clients ask me if it is worth it to "just pay the tax" and convert the balance of their IRAs to a ROTH. Well, I for one never concede the payment of taxes that easily! In truth, there are several strategies which may be employed to reduce, or in some cases, eliminate the taxes on your IRAs. These strategies range from aggressive to very conservative. There are strategies that are perfect for business owners. There are strategies that are perfect for those already receiving Required Minimum Distributions. Depending on your individual goals and circumstances, one of these strategies may be just right for you. Call us to set an appointment to discuss the wide array of IRA strategies offered at Comprehensive Financial Services.