2010 has been another rough financial year. That being said, there are still smart financial moves to make. The number one move this year is converting to a Roth IRA. 

The Roth IRA is an excellent retirement vehicle. It is similar to the traditional individual retirement account, but differs from a tax perspective. You can contribute pre income tax dollars to a traditional IRA, which is good. The downside is you pay taxes on the money when you take it out at retirement.

The Roth IRA works the opposite way. You contribute to it with money you have after paying income tax. This would appear to be a disadvantage compared to the traditional approach, but the end result is much better. The money you get out of a Roth IRA at the time of retirement is distributed tax free.

Why is a Roth IRA better than an IRA? Taxes. As painful as this may be to hear, tax rates at the current moment are actually very low compared to the historical rates. This will not last. The government is running a $1.4 trillion dollar deficit every year and the national debt is now at over $13 trillion. The annual deficit and national debt must be dealt with or we will face the devaluation of the dollar. There is no escaping this problem. Spending will have to be slashed and tax rates will be increased…dramatically. 

Do you want to be in a retirement vehicle that makes distributions that are taxed or tax free in the future? The answer should be pretty obvious. You want to pay tax now when rates are low and reap the benefit later.  Fortunately, you can do this in 2010 through a tax loophole.

2010 is the year of the Roth IRA conversion. You can convert any of your retirement vehicles into a Roth regardless of the amount of money you make or the amount of money being moved. There is one downside. Any money you take out of retirement vehicles is taxed and usually penalized. This year there is no penalty. Further, you are allowed to spread the income tax hit over the 2011 and 2012 tax years. 

Ah, but won’t this cut my retirement savings by 30 plus percent? Yes! However, think the process through. You’ll loose that amount now to taxes, but the remaining amount will grow tax-free until you retire and will then be distributed to you tax-free. That is a huge advantage and the reason why the smart money is moving into Roth IRAs in 2010. 

This conversion opportunity is only available in 2010. Contact us today at (800) 341-5433 or via this contact form to learn more about converting and other financial strategies that can save you a fortune and make you a one as well.