Roth 401K and IRA Conversion Review

Roth IRA a Hot Topic for 2010

Roth 401K or IRA Conversion into a Roth IRA is a hot topic for 2010. The reason is, for people who qualify, they can move their retirement funds into this retirement plan. Those people who do this will get the benefits of tax-free growth of their deposits and tax-free proceeds, when they decide to withdraw those funds from that plan.

No Dollar Amount Limits for Roll-Over or Conversion:

Within the year of 2010 there are no limits to the amount of funds you can roll-over or convert from a Roth-401k-conversion or a straight Roth-convert from a simple IRA. For anyone who qualifies and wants to do this, the major issue is, how much is going to cost, from a tax perspective? There will be a tax on the conversion.

High income earners may find this conversion to be cost-prohibitive. The reason is, if it will cost them more in taxes, to be paid at the conversion, than what they can expect to earn on the amount of converted funds inside the Roth IRA, then it would not make sense to do the conversion.

By contrast, for lower income earners, this conversion process may make more sense. Granted everyone's financial situation is different. But, if the amount of conversion tax can be calculated or estimated to be lower than the expected growth of the converted funds, then it would be the right thing to do. Note: there are free retirement calculators that can be found on the Internet to help anyone estimate their own situation.

Keep in mind, however, for people who decide to do this conversion, they can spread their tax liability over a two year period–namely 2011 and 2012.