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Roth: To convert or not to convert

You may have read that tax law changes went into effect in January that made everyone eligible for a Roth IRA conversion, regardless of income level or tax filing status. What’s so special about a Roth IRA? The assets you are working hard to build now will become tax-free income in retirement. Rather than paying taxes when you withdraw the funds in retirement, you pay taxes on the assets when you invest in a Roth IRA.

If you have a traditional IRA or an employer-sponsored retirement plan, you may be wondering if you should convert those savings to a Roth IRA. There is no one definitive answer to that question, but following are a number of reasons why, depending on your personal financial situation, converting an existing retirement plan to a Roth IRA could help you meet your financial goals.

You don’t expect to need all of the funds when you retire.

With a traditional IRA, you must stop contributing and start taking minimum distributions from your account at age 70 1/2. Roth IRAs have no such age restrictions: there’s no contribution cutoff, provided income requirements are met, and no rule that you must begin tapping your account at age 70 1/2. Your funds have the potential to grow tax-deferred as long as you want and you gain greater control over your income during your retirement.

You can tailor withdrawal amounts to your actual income needs or eliminate them altogether in any given year

So if you are past age 70 1/2 and would like to quit taking those required minimum distributions, you may still have the option to convert some or all of your IRA into a Roth, allowing those funds to have the potential to grow tax-free for your own needs later in life or for your heirs.Note that you will need to pay taxes on the taxable amount of the IRA at the time of the conversion so you should review this option carefully with your tax adviser before electing to convert to a Roth IRA. Also, the funds may only be converted after any current year required minimum distributions have been withdrawn.

You want to leave a lasting financial legacy to your heirs.

Nancy J. Marciniak, a financial adviser with Morgan Stanley Smith Barney, Two N. Tamiami Trail, Suite 1100, Sarasota, can be reached at (941) 364-7475 or (800) 237-9441.