I have previously written about the potential benefits of a Roth IRA for retirees. If you currently have a non-Roth IRA, the questions about the benefits of converting are becoming more urgent. This is because of the window of opportunity for conversion to a Roth (without income restrictions) that is opening in 2010.
The Roth IRA conversion strategy is clearly near the top of the list for retirement tax management.
There are numerous online resources for comparing and assessing Roth eligibility.
Recently, CNN/Money has published a very good slide presentation called “Retire Without Taxes.” This article carefully walks the reader through how to use the Roth IRA to minimize your retirement tax burden.
One of the important points addressed in the presentation is whether Congress could change the rules and start taxing Roth withdrawals made by wealthier retirees. The answer is probably not. However, Congress could do equivalent damage to our retirement tax burdens by either taxing consumption or bumping marginal tax rates for retirees having higher net worth. This type of tax punishment of baby boomers who have actually saved for their retirement is a frightening scenario.
There is one statement that I disagree with in the CNN/Money Roth presentation. The author states that the Roth is only savings plan that gives us the opportunity for tax-free withdrawals in retirement. Actually, there is another plan, and it can be even better than a Roth. If you have a Health Savings Account (HSA), you can use your HSA as a super-Roth investment vehicle. I say “super” Roth because if you use it properly, you won’t pay taxes going in or out of the plan!
Anyway, I recommend careful consideration of the Roth IRA conversion strategy in the next few months because the window won’t be open long. Indeed, if Congress or the White House get nervous about massive amounts being converted early on, they might conspire to close that window early.
Photo credit: brianjmatis