Traditional IRA vs. Roth IRA?

Question

I currently have some money from a previous job in an regular IRA. I'd love to put it in a Roth but when I do I'll have to leave it there with the initial interest rate I joined with - as I understand it. Is now a good time to convert my traditional IRA to a Roth or are there better options?

Answer 1

The major difference between a traditional IRA and a Rothh IRA is the tax situation. A traditional IRA is considered pre-tax, so any distributions will be taxed as income and there is a tax penalty for ealy, before 591/2, withdrawal. A Roth IRA is poast-tax, or after tax dollars. The distribution has already been taxed, so none will be due on withdrawal. You may want to consider a move to your employers retirement plan, if there is one. You can also convert into short etrm CD's or certificates of deposit. These have set periods and are renewablr like IRA's.

Answer 2

Traditional IRA is where your contributions can be fully or partially tax deductible. Any part of your contributions that were made tax-deductible will be taxable when you withdraw it. Any gains on your investments will also be taxable when you withdraw it. The only part that won't be taxable upon withdrawal are the contributions that you didn't make tax deductible. In Traditional IRAs, you must start taking the minimum withdrawal requirement at age 70 1/2. If you don't take it, there will be a 50% tax.

In Roth IRAs, all your investments can be tax-free when you withdraw it after age 59 1/2. Your contributions can not be tax-deductible. There is no age limit on when you have to take the money out, so you can keep your investments for life and give it to your beneficiary when you die.

Do you prefer taxable withdrawals from your Traditional IRA or tax-free withdrawals from your Roth IRA? So, it is the right time to rollover your Traditional IRA into your Roth IRA. I don't know what kind of investments you are putting in there, but there is no such thing as an "initial interest" rate, unless you putting a CD or money market fund in there. As for mutual funds, interest rates are not guaranteed and your portfolio may gain or lose value.

Anyway, this site talks about IRAs and some other stuff in details: http://obe231.blogspot.com

Answer 3

Unfortunately, you cannot take a Traditional IRA and roll it into a new employer's plan as fangtaiyang suggests, unless the plan allows it...and very few do. You can convert a traditional to Roth as long as your income level is below $100,000. Thanks to the Pension Protection Act of 2006 this income limitation will be removed starting 2010, thus anyone can convert. However, you will need enough money outside of the IRA to cover the taxes you will pay upon conversion. If you use funds in your IRA to cover the conversion it is considered a distribution from your IRA and will face additional penalties.

If you are concerned solely about interest rate I would research other Traditional IRA's and investigate a Traditional IRA to Traditional IRA rollover.

Answer 4

Hello
Be careful - don,t ask this question in Northern Ireland :)

Good luck