Converting dollars from a Traditional IRA to a Roth IRA may or may not be an option for you, depending upon your circumstances. Why bother with considering a Roth IRA conversion? A number of points should be considered.

• If a Traditional IRA is converted to a Roth IRA, the cash needed to pay the taxes due should be available from sources other than the IRA. Taking the cash from the IRA reduces the amount of cash available to grow toward retirement. Also, if the taxes paid on the conversion are paid with IRA assets, that amount is treated as a distribution and could be subject to income tax and will be subject to a 10% IRS penalty if the owner is under age 59 ½.

• An additional idea to consider regarding taxes concerns withdrawals. Once a conversion occurs, if the assets are held in a Roth IRA for 5 years or age 59 ½ is reached (whichever comes first), it is possible to take penalty free withdrawals on the converted amount. Each converted amount is subject to a separate 5 year time period.

• Another important difference between Traditional IRAs and Roth IRAs is that there are no required minimum distributions for Roth IRAs as exists for Traditional IRAs. Because Roth IRAs are not subject to mandatory distributions, the assets in Roth IRAs can grow tax free until the owner decides to take withdrawals.

• For those who plan to leave their IRAs to heirs, Roth IRAs have other advantages over Traditional IRAs. Those who bequeath Roth IRAs to their beneficiaries reduce the amount of their taxable estates because of the income tax already paid. In addition, like Traditional IRAs, people who inherit IRAs must make annual withdrawals from the accounts. However, because the tax has already been paid on the inherited Roth IRAs, beneficiaries of Roth IRAs owe no income tax on their withdrawals.

• Traditional IRAs with depressed values can be advantageous to convert to Roth IRAs. The current depressed value will be taxed at conversion and the assets in the Roth IRA will grow tax free (if qualifications are met).

• Current tax brackets and future tax brackets should be taken into account. Paying taxes at a lower rate at conversion than at a higher rate when assets are withdrawn should be evaluated when considering converting IRAs.

Roth IRA conversions can be a great opportunity, but conversions are not right for everyone. You'll probably want to review our article on the Roth IRA conversion rules that take effect in 2010. Keep in mind that each person’s situation is unique and a decision should be made after consultation with financial and tax advisors. To learn more about positioning yourself to achieve your future goals, please contact REDW Stanley Financial Advisors today at 505.998.3200.

This information is brought to you by REDW Stanley Financial Advisors LLC, an SEC registered subsidiary of REDW The Rogoff Firm.