Deadline Approaching for Roth IRA Conversions
A deadline for converting to a Roth IRA is quickly approaching. Investors have until the end of this month (December 2010) to defer taxes on a conversion.
A Roth IRA is funded with aftertax dollars. In other words, you pay taxes on dollars contributed into a Roth IRA. Future withdrawals are then eligible to be made on a tax-free basis, regardless of how much the account balance has grown. Conversely, a traditional IRA is funded with pretax dollars and withdrawals are taxed. This means you are taxed on the amount of the withdrawal, which includes the original deposit and any realized gain on that deposit—a big difference.
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