To Roth or not to Roth

Most of us have probably heard some rumblings of the new tax laws in effect for Roth IRA’s in 2010, and for good reason. The new laws open up the Roth IRA option for many taxpayers who were previously excluded due to income. While many websites claim the Roth IRA is THE best retirement option around, the reality is a number of factors can play into the determination of whether a Roth IRA is right for you. Even if a Roth IRA is the better option overall, additional considerations should be taken into account for determining whether the cost of the conversion is significant enough to deter you from making the switch. There are many different factors that should be taken into account:


This is one of the many sites sold on the Roth IRA, but it does provide a simple calculator that will give you a basic idea of which type of IRA would be more beneficial for you (this does not address the costs of conversion):

http://www.smartmoney.com/personal-finance/retirement/which-ira-is-best-7968/

This is a similar concept, but it takes into account the cost of conversion. It also provides the estimated tax you would pay as a result of the conversion (note this is a very rough estimate, but at least provides a general idea of what a conversion may cost you in taxes):

http://www.schwab.com/public/schwab/planning/retirement/iras/roth_ira/roth_ira_conversion/considerations/roth_conversion_calculator

This article is also sold on the value of the conversion, but it does provide a great overview of the specific rules related to converting a Roth IRA to a Traditional IRA:

http://finance.yahoo.com/expert/article/moneymatters/16201

Below is a discussion of some of the reasons you may decide the conversion is not for you. It addresses some specific factors that may indicate that a Roth IRA would not be the best choice for an individual:

http://moneywatch.bnet.com/retirement-planning/blog/retirement-roadmap/dont-rush-into-roth-ira-conversions/2594/

While many sites tout the benefits of the conversion, there are a number of reasons a Roth IRA conversion would not be in your best interest. The article below details some of the issues that are often overlooked when deciding whether a conversion is in their best interest:

http://www.marketwatch.com/story/12-traps-to-avoid-when-converting-to-a-roth-2010-01-21

Lastly, the article below details how a Roth IRA can be converted back to a Traditional IRA and the benefits of this ability:

http://money.cnn.com/2009/01/08/pf/expert/Roth_recharacterization.moneymag/index.htm

For many taxpayers this move might make a lot of sense, for others it may be in your best interest to stay with a Traditional IRA and spare yourself the costs of conversion. If after reading the above you are still confused, there are a number of financial professionals more than willing to provide their opinion on the topic. At the very least, this is a concept worth reviewing as the tax implications can be large and long lasting.