Those who have money in a traditional Individual Retirement Account (IRA) will pay taxes on the money when they take it out decades from now. Those with Roth IRAs pay taxes now, and get the money tax-free when they retire and tap into those accounts. But what if you could have all that money and never pay a cent of taxes on it?
That's one of the benefits of the Obama tax reform bill. But you have to act fast: the opportunity to convert your regular IRA to a Roth ends December 31. Basically, the conversion equals an interest-free loan.
The deal sounds too good to be true - the government, handing you an untaxed savings account. Why? Income-tax rates were set to rise when the Bush-era tax cuts expired, but Obama made concessions with the wealthy to keep taxes down for the lower and middle classes after the financial crisis.
If you have money in an IRA, speak with a financial planner about whether this option is right for you. The deal is best for those in the highest tax brackets, who could have to pay as much as 39% to access that IRA money in a few years. If they do it now, it would be about 35%, a savings of thousands when you're talking about your entire retirement savings.
Transferring the money now is particularly beneficial for those who know they will be in higher tax brackets when they reach retirement, as they'll pay according to what they make now.
As with so many things having to do with financial planning, the details can be mind-boggling. Speaking with a wealth adviser can help you to decide what works, and many give free consultations.
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