Newspaper article THE JOURNAL RECORD

Should You Roll to a Roth?

Newspaper article THE JOURNAL RECORD

Should You Roll to a Roth?

Article excerpt

Because their funds are tax-deferred until they're withdrawn, individual retirement accounts have long been a favorite long-term investment tool. Their advantages were clear.

Then along came the Roth IRA. Signed into law last August as part of the Taxpayer Relief Act, the Roth account functions in the opposite way as the traditional IRA. It does not allow any tax deductions for contributions, but earnings accumulate tax-free. There are no taxes on distributions.

With its January start, during its first year the government is allowing a penalty-free rollover from traditional to Roth IRAs. But should you? For many, the Roth offers clear advantages. Greg Womack, a certified financial planner at Financial Network Investment Corp., offered two examples using retirement planning software. First, if a 27-year-old were to start contributing $2,000 annually to an IRA until retirement at 65, and then took money out until death at 80, he would earn $61,398 annually in after-tax income for a total distribution of $920,964. But with a Roth IRA, he would have $85,274 in after-tax income a year for a total distribution of $1.27 million. Second, if that 27-year-old had $10,000 in a traditional IRA and left it at that -- retiring at 65, taking money out until death at 80 -- he would receive $28,603 a year over his retirement, or a $429,048 total distribution. If, on the other hand, he converted that $10,000 to a Roth, he could get $39,727 annually at retirement or a total distribution of $595,900. These are, of course, based on past results and not indicative of future returns. Nor are the figures adjusted for inflation or future tax rate changes. Even so, the choice seems simple. But Womack and other financial experts say each individual's unique situation must be taken into account. John Dalton, an adviser at Capital West, notes that while he's gotten a lot of inquiries about the Roth IRA, it's not for everyone. …

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