You have less than 2 weeks to decide whether you’re converting an IRA to a ROTH… but why on earth would you do that?
To pay Uncle Sam less taxes and keep more for yourself.
Consider the following:
- Did you have substantially less income in 2014 than usual?
- Did your IRA suffer losses?
- Will your small business post a NOL (net operating loss) in 2014?
If you answered yes to any of these, then you need to consider converting your IRA to a ROTH IRA.
Why? Convert now, pay taxes now and the account grows tax FREE, for life – not tax deferred like an IRA.
Here’s a great example from Putnam for the new business owner who will post a NOL this year:
Example – the illustration below makes the following assumptions:
- John is a sole proprietor, married, with two children
- He has a SEP IRA valued at $200,000
- Due to investments within the business and a poor economic environment, business losses total $150,000
- His wife earns $75,000 annually
- They report an additional $5,000 in income from interest and dividends
- Non-business deductions total $35,000 (itemized deduction + personal exemptions)
End result: John is able to convert $70,000 of his SEP IRA to a Roth without tax consequences.
If you have an IRA, call your advisor and ask the question – you’ll never know if you don’t ask. Your $30K IRA could be worth substantially more if it’s tax FREE at 60, versus fully taxable at 60.
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