It is important to understand the rules are when you choose to convert traditional Ira to Roth Ira. Without knowing what you are doing you could suffer unnecessary losses.
There are lots of reasons to consider changing your retirement account. The important thing is to understand what each type of Ira has to offer.
A traditional Ira is a tax deductible retirement savings plan which means that once it is mature for withdrawal usually after retirement it will be taxed. This is good if taxes will be lower then so you will make some savings. Any profits that accrue from this savings by means of buying and selling of stock and other investments remain untaxed as long as they are not withdrawn.
With the Roth Ira taxes are paid upfront but any withdrawals after retirement are not taxed including any profits from investments and assets. This is good if taxes will be high at your retirement.
The process of converting a traditional Ira to a Roth Ira is known as a rollover. One of the main advantages that a Roth Ira has over a traditional one is that it has no limits on withdrawals.
For most people that are retiring or wish to pass over their assets to heirs it is the most convenient way to do it. With the traditional Ira, there are limits as to how you can withdraw per year.
All of the money in a Roth Ira can be distributed and no minimum age is imposed for the start of distributions. With the traditional Ira, however, distributions must begin from the age of 70 . This allows your money to grow for a longer period of time.
You should be aware that if you choose to convert, you will be taxed on the Ira portion of your retirement package. The only exceptions are any non-deductible deposits that you might have made to the traditional Ira that you wish to convert.
A Roth Ira is a good shelter if you have a big enough estate as you can include it and in this way you will have access to more of it or your heirs will instead of a traditional Ira where estate and savings will be taxed at withdrawal or distribution.
Traditional Ira funds are taxed as income tax and you are forced to make withdrawals from 59.5 years onwards. This makes converting traditional Ira to Roth Ira sometimes a good plan.