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New Year means new opportunities for Roth IRA conversion according to Edward Jones financial advisor

BONSALL – Beginning this month, the income restrictions will be lifted for individual investors looking to convert their traditional individual retirement accounts (IRAs) to Roth IRAs, according to Kent Borsch, a financial advisor in Bonsall.

Previously, investors with an adjusted gross income of more than $100,000 (filing individually or jointly) could not convert to a Roth IRA from a traditional IRA.

Investors will have to pay taxes when they convert to a Roth IRA. A conversion is usually reported as income for the tax year the conversion takes place. However, in 2010 only, your conversion amount will be split and reported as income for tax years 2011 and 2012 unless you elect to report the entire conversion amount on your 2010 taxes.

Investors who own a traditional IRA make contributions that may be tax-deductible, depending on their income levels. Traditional IRA earnings grow on a tax-deferred basis.

This means your money has the opportunity to grow faster than it would if it were placed in an investment on which you paid taxes every year.

On the other hand, Roth IRA contributions are not tax-deductible, but earnings grow tax free, as long as the investor holds the account at least five years and doesn’t start taking withdrawals until at least age 59-1/2

Unlike a traditional IRA, a Roth IRA does not require distributions when one reaches 70-1/2.

Whether or not investors decide to convert to a Roth IRA, they should first consult with their tax advisors.

Edward Jones provides financial services for individual investors in the United States and, through its affiliate, in Canada. Edward Jones, its associates and financial advisors do not provide tax or legal advice. Consult with your tax advisor before converting from a traditional IRA to a Roth.

 

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