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Bonita & Estero Magazine

Saving? You Might Want to Reevaluate

Jun 17, 2015 08:19AM ● By Corinne Moore
A Roth IRA Could Make More Dollars and Sense for Your Retirement

By Marsha McDonald

You may have noticed a lot more buzz about Roth IRAs lately. I know I have. Clients are very interested in learning about them and whether or not converting their traditional IRAs to a Roth may be the right move for saving tax dollars in retirement.

With the national debt at some $18 trillion now, we’re all expecting taxes to increase and realize we may not be paying less tax but actually paying more in our retirement years.

If you’re a baby boomer like me, you’ve focused most of your accumulation years on deferring taxes through traditional IRAs and 401Ks. The premise was that it would be better for us to pay taxes in our retirement years because we would likely not be earning as much money and therefore be in a lower tax bracket.

But with the national debt at some $18 trillion now, we’re all expecting taxes to increase and realize we may not be paying less tax but actually paying more in our retirement years. So, a lot of savvy investors have begun to run the numbers and decided that converting to a Roth over time could be the wisest decision they could make and here’s why.

While the Roth requires that tax be paid on the contribution, it is allowed to grow tax-free and be taken out without paying additional tax. However, there are restrictions. You can only put in $5,500, or $6,500 if you are 50 or older by December 31st of that year, and that would be the maximum contribution whether a traditional IRA, Roth or a combination.

In addition there are income restrictions. Contribution limits are determined by your AGI (adjusted gross income). Married filing jointly and qualifying widow or widower, married filing separately, single head of household, and married filing separately and living apart have different contribution limits. You can find your applicable contribution restrictions on the IRS website,

If you decide that you would like to convert your traditional IRA to a Roth the process is fairly simple. You start by notifying your existing IRA trustee /custodian that you want to convert all or part of your traditional IRA to a Roth IRA and they will provide you with the necessary paperwork.

You can also open up a new Roth IRA at a different financial institution, and then have the funds from the traditional IRA transferred directly to your new Roth IRA. The institution to which you are transferring would provide the forms in that case. Or, you can have the trustee/custodian of the traditional IRA cut you a check then you can deposit it into your new Roth within 60 days. The income tax consequences are the same regardless of the method you choose.

You also need to consider how much and the timing of transferring funds to make sure you select the manner that is most beneficial to you. Your CPA or financial advisor can assist by calculating the conversion tax for you to see what works best for your particular situation.

All written content is for information purposes only. It is not intended to provide tax or legal advice or provide the basis for any financial decisions. All information and ideas should be discussed in detail with your individual advisor or qualified professional before making any financial decisions.

Marsha McDonald is a financial advisor with Advantage Retirement Group with offices in Fort Myers and Naples.