Posted on July 20, 2005 at 16:50:53:
Want to protect your retirement account from taxes on future growth? Want to avoid the forced withdrawal of your invested cash? A new rule may improve the prospect.
Generally, people with incomes over $100,000 are prohibited from converting their traditional retirement accounts to a tax-free Roth IRA. And, up to now, the required minimum distribution from an IRA at age 70 ½ counted toward total income. No more. As of this year, the required payout from an IRA no longer counts when determining eligibility for a Roth conversion. As long as other income for the year is under $100,000, conversion is allowed.
It’s not cheap to convert, but it’s still a bargain for affluent retirees. The IRA funds going into the Roth are taxed at the individual’s current rate, but any future earnings on the money will grow tax-free and no further distribution is required. And the funds can pass to heirs free of income taxes, too.