Roth IRA Conversion
You see, 401ks and IRAs are tax-deferred accounts, which enjoy the benefits of compounding growth without having to pay taxes on the earnings. However, when you reach the age of 70 ½ , the IRS mandates that you must begin taking minimum distributions. It is then that you must pay ordinary income taxes on those distributions.
If you own a 401k or IRA, you are in partnership with Uncle Sam. While you’re alive, he owns 1/3 and you 2/3. When you die, he may inherit up to 3/4
leaving your heirs only 1/4.
While Uncle Sam may be a silent partner, he is NEVER silent.
If you are under 59 ½, Uncle Sam prefers that you do not take withdrawals from the 401k or IRA. If you do, he can penalize you with a 10% fee plus pay his portion to him in taxes.
If you’re over 70 ½, Uncle Sam requires that you begin taking required minimum distributions that he has set out. If you do not or forget to, he’ll penalize you with a 50% fee of the amount you should have taken out, plus pay his portion to him in taxes.
When you die, Uncle Sam may require you to pay up to 75% in income and estate taxes on your 401k or IRA.
How does that make you feel?
You take all the risk, make all the decisions, manage it, obey the law, and yet, in the end, Uncle Sam stands to inherit most of your 401k or IRA.
What can you do to avoid having your 401k or IRA handcuff to Uncle Sam?
By Converting Your IRA/401k to a Roth IRA and Paying Him His Share Now, You Divorce Him as a Partner, and Therefore, Eliminate Any Stiff Penalties and Big Taxes Later.
It’s like paying off a nasty business partner so that you can move on and build a larger, more successful business without him looking over your shoulder every day.
What do you do with the converted money?
To effectively convert your 401k or IRA to a Roth, it is best to convert it over a period of 5-7 years. Therefore, you could spread the taxes paid to Uncle Sam over a period of time, instead of in a lump sum.
Why use a Roth IRA Conversion?
Because, if properly structured, you could protect your principal, allow your money to grow tax-deferred, be distributed income tax-free, and upon your death, be transferred tax-free to your heirs.
In essence, you and your heirs may save hundreds and thousands of dollars in taxes.
Given the current economic crisis, it may be the BEST TIME to do a Roth IRA Conversion now. You’ll pay less taxes, and have the opportunity to make big gains when the market recovers.
To see how a Roth IRA conversion may benefit you, click here to request a customized analysis today.
