Tuesday, September 15, 2009

Two Reasons Why This is a Good Time to Convert …

Despite the recent run-up, the S&P 500 is down by about 13% from a year ago ... and 33% off its October 2007 high. So as long as you qualify, now could be a good time to convert your traditional IRA to a Roth IRA. You see, when you make the conversion, you’ll have to pay ordinary income taxes on the amount converted. So compared to where the markets were last year, you stand a good chance of paying less tax now than you would have back then. And the beauty of a Roth is that the money will never be taxed again. Plus, there’s the issue of higher income taxes in the near future ... The U.S. is expected to have a $1.58 trillion deficit this year. And Treasury Secretary Geithner said at a recent town hall meeting that getting the nation’s fiscal house in order will require doing “difficult things.” Does that mean higher taxes for Americans? Geithner wouldn’t say. But right now, we have some of the lowest tax rates in history. So there’s a darn good chance that rates will go up to pay for the government’s ambitious spending. So when you combine lower stock values with relatively low tax rates, now could be an excellent to convert that traditional IRA and pay the taxes this year rather than later. Best wishes, George

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