Convert your Traditional IRA to a Roth IRA before December 31, 2011.

For the first time in history, the tax laws will allow you to convert your traditional IRA to a Roth IRA regardless of your income level in 2011. You have until you file your 2011 tax return to decide if you want to pay taxes on the amount converted or move it back (IRS calls this a recharacterized conversion) to a Traditional IRA. That’s up to 9½ months if you file an extension to October 15, 2012.

What if the value of your Roth IRA goes down after you convert?

If the value of your Roth IRA depreciates before you file your 2011 return (as long as 9½ months), you have the choice of converting it back to a Traditional IRA and pay no taxes on the amount of the conversion. With a Traditional IRA, you don’t pay taxes at the time you make a contribution to your account, but you do pay taxes at the time you withdraw the funds.

What are the advantages of converting to a Roth IRA?

Roth IRA vs. Traditional IRA

Roth IRA advantages:
1. Roth IRA’s provide tax-free growth while traditional IRA’s provide tax-deferred growth. Roth IRA’s are more attractive the longer they have to grow.You never pay Federal or Indiana taxes on the earnings.
2. All distributions are tax and penalty FREE if you have had the account for at least 5 years and you reach age 59½.
3. There are no longer required minimum distributions at age 70½ or older.
4. There is no longer an income limitation for conversions and rollovers into Roth IRAs.
5. Roth IRA beneficiaries can also receive distributions income tax free. Beneficiaries pay income tax on withdrawals from inherited Traditional IRA’s.

Traditional (deductible) IRA Advantages:
1. A deductible IRA is generally the better choice for taxpayers expecting to be in a lower marginal tax bracket when funds are withdrawn.
2. The deductible IRA may also be the better choice for a taxpayer who needs the funds resulting from the tax savings to make the contribution.
*SEP, 401(k) and 403(b) retirements accounts must first be converted to a Traditional IRA and then to a Roth IRA. That can all be done the same day.

Learn more about converting your Traditional IRA to a ROTH-IRA.

There are three ways you can learn more about this opportunity from Fiscal Tax. You can comment to this blog, call us at 317-825-2282, or email our Founder and President directly at john@fiscaltax.com.