Converting Your Traditional Ira To A Roth Ira

At the beginning of this year, the eligibility limits for workers who want to convert

their IRAs to Roth IRAs were relaxed - higher-income investors who earned gross incomes over $100,000 and were previously unable to do so because of income limits are now permitted to convert due to relaxed guidelines, although they have to pay income taxes based on their tax brackets when converting all or part of the money they've contributed to traditional IRAs.

Although Roth IRAs are becoming increasingly popular because of the benefits these retirement accounts give participating workers, there are still some disadvantages to account participation. For one thing, the value of your investments can drop if you convert to a Roth IRA from a conventional IRA - a good possibility, considering market conditions and the previous stock market year. You might find yourself paying bigger taxes on the conversion than if you'd waited until conditions became more favorable, and less damaging to your investment's value. How can you put your investment back on track?

All isn't lost - you still have the option to undo the conversion by re-characterization of your Roth conversion. This process allows the investor to reverse the converted amounts (from a traditional IRA to a Roth IRA), although one needs to act fast. If you want to redo the said conversion, you'll have until the 15th of October of the year after you've converted your IRA to do so. Findings from recent surveys on the topic state that approximately a third of all participants eligible for the re-characterization knew they could do-over the process.

If you've taken advantage of an IRA-to-Roth IRA conversion, but found out that your investment's value has dropped considerably, talk to your financial advisor to find out if you're eligible for the redo, and how to go about re-characterization of your IRA conversion if you are.

by: Carina Smith

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