Golden opportunity to convert your traditional IRAs to Roth IRAs

[jtr1962]

With the stock market continuing to fall into the abyss, the majority of IRAs invested in mutual funds or stocks are worth far less now than a year ago. The market may or may not hit bottom soon. No way of knowing. Regardless, the (hopefully) temporary lower value of your IRAs means that you'll take a smaller tax hit if you convert traditional IRAs to Roths. You may convert some or all of your IRAs, or even part of only one if you wish. You will have to pay income tax on the fair market value at the time of conversion of portion of the IRA(s) you convert. However, with most investments being down this year, that means a smaller tax hit. Moreover, many people have either lost their jobs or had pay cuts, meaning they're in a lower tax bracket. The upside to converting is that your gains henceforth will be tax free forever. Another advantage of a Roth is there are no required withdrawals when you reach 70½. You can keep the money in forever if you want and leave it to your heirs.

Anyway, I suggest taking advantage of this rare opportunity!

 

[Brock]

You know I had thought about this since we just got turbo tax.

What exactly would you pay tax on, I assuming no penalty, just the tax on the whole amount that moves?

 

[jtr1962]

You know I had thought about this since we just got turbo tax.

What exactly would you pay tax on, I assuming no penalty, just the tax on the whole amount that moves?

Yes, just income tax on the amount that moves. There's no penalty because it's not an early withdrawal but remember even in a Roth you still can't touch the money without penalty until you're 59½.

 

[Brock]

Thanks I also wondered about that. I thought in a regular Roth you can take the "base" back out after 5 years. In a transfer what counts as a base or does it all become tax penalty if it were withdrawn early?