Tax Tip #22: Take a different path to a Roth IRA

Your income may limit your ability to open a Roth IRA, but you can take a different path to a Roth IRA by converting a traditional IRA to a Roth IRA.  You can convert a traditional IRA to a Roth IRA no matter how high your income.  Roth IRAs are popular because qualifying distributions are tax-free, and annual distributions are not required at age 70½.

Description of a Roth IRA from the IRS Website:

A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA.  It can be either an account or an annuity. Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Opened.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened.  A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.

Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA.  But, if you satisfy the requirements, qualified distributions are tax free.  Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live.

 Description of a Traditional IRS from the IRS Website:

A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. Traditional IRAs are discussed in chapter 1.

For details on this option, call Bressler & Company at 559.924.1225.