After the fiscal cliff deal, the Roth IRA just keeps getting better and better for more and more people. First, however, you need to understand what the Roth IRA is, how to use it, and most important, how to know if it is right for you. A recent CNN Money article titled “More savers can convert to Roth 401(k)s under fiscal cliff deal” says it all. Nevertheless, there is more to a Roth IRA than meets the unaided eye. Essentially, the Roth IRA reverses the normal IRA by requiring that you pay the income taxes on money deposited in the account up front when you deposit them instead of when you withdraw the money later. Also, in addition to no income taxes when withdrawn, with a Roth IRA you have no Required Minimum Distributions (RMDs) later on. The fiscal cliff deal lets more people, and those of lower incomes, convert their IRAs into Roth IRAs if they settle the tax burden up front. This can help with estate planning for their loved ones, too. According to experts, however, a Roth IRA may not be right for some folks. A recent MarketWatch article titled “Roth conversions easier, but are they right?” addresses this concern. As with all things financial, as well as legal …look before you leap. This is especially true when it comes to tax law changes brought by the fiscal cliff deal.
Reference: CNN Money (January8, 2013) “More savers can convert to Roth 401(k)s under fiscal cliff deal ” MarketWatch (January 3, 2013) “Roth conversions easier, but are they right?”
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