If you have a retirement account, either on your own or with your company, the likelihood is very good that you have an IRA of some sort. An IRA is an investment account that may include any number of investments such as stocks, bonds, mutual funds, or CDs, and is a tax-deferred account.
What this means to you is that when you turn 70.5 year old, the government will require you to take a required minimum distribution (RMD) and they will tax the money. There is a trade-off here in that because the funds are not taxed when they are put into the account, they are allowed to grow quicker. But, you also have to start taking the money out at a certain age, and when you do, it will be taxed at that rate.
The government has instituted an extremely popular Roth IRA conversion plan this year, whereby people with IRAs are being asked to convert them to a Roth IRA. The Roth IRA conversion is actually a good idea for many people.
The main difference in the Roth IRA conversion is that the money is taxed going into the account. That means you will have less to invest over time. However, there is no required minimum distribution and you can begin taking the money out whenever you want. Additionally, you will not be taxed when you do decide to start taking your retirement. This means you will have more money in your pockets later on.
The primary beneficiary is, of course, the government who is choosing to take their tax money now rather than later, but it also benefits you. So, if you do have an IRA or are thinking of setting one up, you may also want to think about switching it over to a Roth IRA for these additional benefits.
Bobby Miller is a writer and researcher on roth ira conversion. Save time and money by getting FREE tips and in-depth information on all things debt, investment, and budget-related at this blog: budgetsnob.com
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