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Timing is everything. While a Roth conversion is often a better idea for younger investors with higher future earning potential than it might be for more established professionals nearing retirement age, Roth IRA owners are not forced to take Required Minimum Distributions (RMD) at age 70½. This feature can be quite appealing to older high-net-worth investors, especially for those who wouldn’t withdraw from their IRAs if not for RMD rules. The owner’s heirs will be required to take minimum distributions, just like they would from a Traditional IRA, but those withdrawals will be tax-free.
It doesn’t have to be all or nothing. Even if an in-depth evaluation of your current financial situation and long-term goals indicates a Roth conversion might make sense for you today, there are factors playing out in real time that could change the bigger picture in the near future. For instance, it’s very possible that taxes will increase for those in the highest bracket after 2010. And, if the federal deficit continues to increase as it has recently, the need to raise taxes more aggressively in the future may well become more urgent. For these and other reasons, you may want to diversify your retirement assets across tax-deferred and tax-free investment vehicles. You aren’t required to convert your entire Traditional IRA to a Roth IRA. Any amount you do convert should create a manageable tax liability today and should consist of assets you won’t need to access for a number of years, but the rest can stay put.
Converting your retirement savings to a Roth IRA could be a very beneficial or unexpectedly costly decision if made hastily. It’s important to carefully consider the implications of a Roth conversion in the context of your complete financial picture and comprehensive long-term plans. Beware of most do-it-yourself, online Roth IRA conversion calculators. These often make standard assumptions about goals and time horizons, which can actually vary widely for different individuals. We strongly recommend that you get help from a Financial Advisor who truly understands and accounts for the intricacies of your unique situation in a comprehensive financial plan that looks at your future using either a Traditional or a Roth IRA, or both.