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Sorting Through the Hype on Roth IRA Conversions

05/03/2010 05:12 am 05:12:02 | Updated May 25, 2011

2010 is the year of the Roth IRA conversion. But is a Roth right for you?

A change in federal law has eliminated income limits for eligibility to convert traditional tax-deferred retirement savings to Roths. As a result, mutual funds and financial advisers are marketing conversions this year with gusto.

Unlike a tax-deferred retirement account, you contribute post-tax dollars to a Roth IRA-but your Roth grows tax-free thereafter. With a traditional IRA, you'll pay taxes upon withdrawal on both the original investment and any growth. So for many investors, long-term returns from the tax-free Roth will be substantially higher than with a traditional IRA.

Another major Roth benefit is flexibility. You must take an annual distribution from your traditional IRAs once you turn 70-1/2, but these aren't required with a Roth. If you don't need the funds to meet living expenses, you can let the invested funds keep growing. This feature also makes Roths a good vehicle for estate purposes, as you can bequeath holdings to heirs as tax-free income.

But Roth conversions do present some tricky issues that should make you think twice. Get the full story at RetirementRevised.com.