Pros and Cons of Roth IRA conversions
Roth
IRA has
a new rule which has come into place effective January 2, 2010 which makes it
all the more attractive compared to other IRA plans and therefore there is
every reason to convert your current IRA funds to these Roth
IRA plan. The main change in the rule pertains to the removal
of the conditioning limiting such funds to an earnings test. So let us now look
at some of the main reasons why this product should be kept in mind while
converting from other IRA funds.
The first positive reason for moving to this fund is without doubt the tax free distributions which form a major feature of this product. Since no tax is deductible on maturity, this is an excellent protection for the customer against any possible future tax increases, which literally sends shivers down people, especially people who are on the verge of retiring. Hence, Roth IRA funds are an excellent hedge against tax increases in the future. The next important advantage which this product has over its counterparts is with regard to required minimum distribution. This is nothing but an obligation which makes it mandatory to that distributions must begin as and when an individual turns 70. This is called Required Minimum Distribution. However the products of Roth do no have such criteria. Hence this make the product score heavily over others in this particular criteria alone.
Another important feature which is a good reason for you to switchover to this product is without doubt the clause related to penal charges on premature withdrawals. There are no penal charges applicable at all if the customer wishes to withdraw the principal that he or she has painstakingly deposited over the years. The second clause relates to penal charges on investment gains. This is nothing but the interest income generated and accrued on the product over the past many years. No penal interest is payable even on the interest component provided the customer is of a minimum age of 59.1/2 years and secondly if the customer has kept the funds in this scheme for a period of at least five years.
The first positive reason for moving to this fund is without doubt the tax free distributions which form a major feature of this product. Since no tax is deductible on maturity, this is an excellent protection for the customer against any possible future tax increases, which literally sends shivers down people, especially people who are on the verge of retiring. Hence, Roth IRA funds are an excellent hedge against tax increases in the future. The next important advantage which this product has over its counterparts is with regard to required minimum distribution. This is nothing but an obligation which makes it mandatory to that distributions must begin as and when an individual turns 70. This is called Required Minimum Distribution. However the products of Roth do no have such criteria. Hence this make the product score heavily over others in this particular criteria alone.
Another important feature which is a good reason for you to switchover to this product is without doubt the clause related to penal charges on premature withdrawals. There are no penal charges applicable at all if the customer wishes to withdraw the principal that he or she has painstakingly deposited over the years. The second clause relates to penal charges on investment gains. This is nothing but the interest income generated and accrued on the product over the past many years. No penal interest is payable even on the interest component provided the customer is of a minimum age of 59.1/2 years and secondly if the customer has kept the funds in this scheme for a period of at least five years.
