I just had $800 of annuity savings from a former job rolled over to a traditional IRA. I also have Roth IRA worth several thousand. Is it worth it to convert that $800 to the Roth account? If not, what should I do with it?
2006-12-13 03:59:48 · 4 answers · asked by dullerd 2 in Business & Finance ➔ Investing
Someone said there will be a 10% penalty and someone else said there is. Which is it?
2006-12-13 13:20:00 · update #1
There is no simple answer, because it depends on many circumstances. For example, if you move it into a Roth, you will have to pay taxes on it now, but you won't pay taxes on the earnings when you retire.
If you expect your tax rate is higher now than it will be after you retire, then don't convert. You'll just end up paying the higher tax rate.
If you expect your tax rate is lower now than it will be after you retire, then convert and save the tax difference.
HOWEVER, that is only one consideration. Others concern such issues as access to investment opportunities. For example, some mutual funds require that you have a minimum amount to buy in, such as $2500. If you have only $800 available in your traditional IRA, you are precluded from such choices. On the other hand, if you want to buy individual stocks, then you can do that with $800 (depending on the stock price, of course) and not face the same sorts of restrictions.
Some firms (e.g., Fidelity) offer conversion advice and calcuations to assist you. However, their advice is only as good as the facts at your disposal, and you will have to estimate your post-retirement tax rate -- a chancy proposition at best, since taxes go up and down with every change in Washington DC.
2006-12-14 07:51:22 · answer #1 · answered by Scott K 2 · 0⤊ 1⤋
Yes,
Untill you are fully funded in a roth that is where your retirement money should go. How you invest the roth is an entirely different question that you should ask!
2006-12-13 04:03:32 · answer #2 · answered by guntoteninfadel 1 · 0⤊ 0⤋
A Roth is a much better long-term option.
2006-12-13 04:02:14 · answer #3 · answered by Emily B 4 · 0⤊ 0⤋
Yes, lump it all together in the Roth. You will pay taxes on the $800 for the current tax year, and there is no 10% penalty for converting.
2006-12-13 05:53:46 · answer #4 · answered by 12 November 3 · 0⤊ 0⤋
If you convert it you will have to pay taxes on that money and if you are under the age of 59 1/2 you will also have to pay a 10 percent penalty. Leave it and let it grow.
2006-12-13 04:03:10 · answer #5 · answered by CJM 3 · 1⤊ 1⤋