which should you use? That depends on the benefits you want to get and your current and projected tax brackets.

The younger you are, the better the Roth IRA appears. If you start early, the Roth allows more years of tax-free accumulations. the younger you are, presumably, the better the chances you are in a lower bracket, therefore reducing the benefit of its deduction with the traditional IRA.

Alternatively, if you are older and in a higher bracket, the better the traditional IRA looks. Additional elements that must be examined or projected are the yields you expect to earn, whether you want to make contributions after age 70.5 and the marginal bracket you expect to be in when the dollars are withdrawn.

There are no simple answers. Every brokerage account out there has computer programs that will find you an “answer” based on your assumptions. I have even found different answers with the same input, depending on when the computer assumes the money in invested. Pen your own numbers and relax – your decision is between the better of two strategies, both of which are winners!

Converting a traditional IRA to a Roth IRA

Should you convert your traditional IRA into a Roth IRA and change from tax deferral to tax-free accumulations? the answer here also depends on a number of factors.

You can roll all or part of a traditional IRA into a Roth IRA at any time, even if you have started to take withdrawals, as long as your modified adjusted gross income doesn’t exceed $100,000. Note the changes made by the Tax Increase Prevention and Reconciliation Act of 2005, passed in 2006, on page 141. however, when you do, you owe income tax on the money you move, If you made the rollover in 1998, you spread that extra income, and tax, over four years. If you find you exceed the $100000 limit, you can reverse the transfer up to the due date of your return plus extensions.

Your first consideration should be where you get the money to pay the tax on the rollover. It can’t come from the regular IRA or there will be a premature distribution with a penalty because those dollars are not going into the Roth.

Once you have funded your rollover, the considerations are the same as between a traditional and Roth IRA – your age and years to retirement, your bracket now and at retirement, do you want to contribute after age 70%, and will this impact on the tax ability of your Social Security. (Traditional IRAs require annual distributions which could increase the tax ability of your Social Security receipts. you don’t have to ever take money out of your Roth although your beneficiaries are subject to minimum distribution rules.) the big difference over, reducing your liquidity for future investments. Again, all of the major brokerage and mutual fund houses offer computer programs which will give you an “answer,” based on the assumptions you input.

Traditional Ira V/s Roth Ira