Ira V/S Roth Ira

As age started making its presence felt, concerns over securing my hard earned money in the best possible manner was topmost on my mind. I have known the Individual Retirement Account (IRA) and now there’s a talk going on about people converting their IRAs into Roth Individual Retirement Account. So here I am discussing about the Roth IRA to see if it is indeed worth converting your regular IRA into one.

Roth Ira seems to be definitely tilted in favor of those who are on the right side of age. With good proactive investment strategies they can actually benefit from the Roth IRA. This is because the Roth IRA allows for tax waiver, whereas the normal IRA allows for only a deduction. Obviously, since no-tax is better than less-tax, you might want to go for the former. But here are some facts upon which your decision for going for a Roth IRA conversion should be based.

Roth IRA comes with contribution taboo

The first aspect in which the IRA scores over the Roth IRA is that the latter comes with a taboo on the amount of contributions that you can make. In the current year my annual income is around $130,000. Now it seems I cannot contribute to the Roth IRA because it does not allow people above an income of $120,000 to contribute. Also if the combined earnings of your spouse and you exceed $ 176,000 just forget a Roth IRA conversion because you are simply ineligible for that. Now I think, that will put this account policy against the favor of many people.

Once you make a Roth IRA contribution just forget it. You cannot alter it because Roth contributions are non-deductible. So, if you are willing to make these compromises for getting a tax-fee IRA go ahead with the Roth IRA.

Pay 100 % tax for a Roth conversion

If you want to convert to the Roth account be prepared to pay 100% tax on the converted amount, if you don’t have already some Roth IRA account. The conversion is not going to save you a lot of money that you’d have otherwise paid as a deferred amount with your regular IRA. A tax-deferred status to a tax free status comes with a price.

The better side of Roth IRA is that you can see the restrictions being relaxed to a certain extent. Till now you are eligible for the Roth conversion only if your income is lower than $100,000 and only married couples could file status jointly. But after the end of this 2009, you’ll see that people with higher income than the prescribed upper limit for contributions can make the contributions to a Roth IRA to the extent permissible by them and then keep the rest of the money in regular IRA.

In the present market scenario a Roth conversion might seem to be a beneficial one, despite all restrictions. If your income is lower than $100,000 you can go for it right away. Also you can take advantage of the present day recession to lower the tax on your contributions. If you are a stock market investor, you can take advantage of the slinding share market rates. If you had bought shares at a higher rate last year and if your tax was fixed at a certain amount and if the price of the shares has dropped and you bought more shares you’ll still have to pay the same amount of tax. With declining trend in share markets, you can expect to benefit from this in the near future. So, the Roth investment is not such a bad investment after all owing to the present market conditions.

As stated earlier the Roth IRA account makes it necessary for you to pay taxes for the converted amount. Now, if you don’t have the money for conversion, converting it into A Roth account is not advisable.

You can always compare between the pros and cons of a  Roth IRA account and a normal IRA account and then decide upon it.