Did you know that 47% of Americans are worried they will outlive their money after retirement?
~Gallup Poll ‘08
Planning for retirement can’t seem to start too early, and there are many options available to workers to help reach retirement savings goals. 401ks and pensions can help but one of those options is Individual Retirement Accounts, or IRA’s. These are available in two forms – Traditional IRA’s and Roth IRA’s.
In a Traditional IRA, money may be set aside in an account each year and allowed to grow tax deferred. You may be eligible for a tax deduction when you make your contributions, then the money is taxed when it’s withdrawn during your retirement.
In a Roth IRA, money is also set aside each year, however there is no tax deduction for the year contributions are made. Instead, that money can grow and be withdrawn during retirement without taxation. Of course there are many other rules and tax provisions related to either form of IRA. This is just a very simple and general overview of the difference between the two.
Eligibility for a Roth IRA is dependent on income, with higher wage earners not eligible for Roth IRA’s. There’s a provision in the tax code which takes effect in 2010 that allows Traditional IRA’s to be converted to a Roth IRA.
Check out these websites that go into greater explanations and details are www.rothira.com and http://www.money-zine.com/Financial-Planning/Retirement/2010-Roth-IRA-Conversions/. Many other online resources can be found by searching “Roth IRA Conversions”.
Is this something you should be taking advantage of? That’s something you should consult with your tax professional about before making any decisions. Those questions are beyond the scope of this blog and aren’t intended to be answered here. However it may provide some individuals with a great retirement planning opportunity!