Tuesday, June 23, 2009

Roth IRA's may figure big time into retirement planning

Kelley Greene wrote a detailed article on Roth IRA’s for this past weekend (June 20) Wall Street Journal, “The Journal Report” section, here.

The article has a rather elaborate title “Making a Good Deal for Retirement Even Better: New tax rules are about to give more people access to a Roth IRA, one of the best savings plans for later life. Here’s how the changes work—and how to get ready.”

In general, contributions to Roth IRA’s do not shelter income from taxes, but later many withdrawals will be tax free.

The Wikipedia article explains the advantages and disadvantages of Roth IRA’s compared to traditional IRA’s, here.

One reasoning that the loosening of some rules will help some people is that the values of many traditional IRA’s plummeted during the 2008 financial crisis and recession. So many people may come out ahead by converting money to Roth IRA now when the tax would be lower, and enjoy tax free withdrawals later.

The WSJ article calls the Roth IRA “one of the best deals in retirement planning.”

Much of the improved benefit from the Roth IRA comes from the Tax Increase Prevention and Reconciliation Act of 2006. A group named Stevens & Brand has a detailed discussion how the income limit on Roth IRA conversions bumps up, starting in 2010 (link).

The Govtrack reference for the law HR 4297 in the 109th Congress is here.

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