With a traditional (IRA) individual retirement account, contributions can be tax deductible but then withdrawls will be fully taxable. With a Roth (IRA) individual retirement account , contributions are never tax deductible, but withdrawls can be tax free.
Starting this year , anybody with a traditional IRA is allowed to convert part or all of it to a Roth IRA, regardless of income or filing status. This conversions seems to allow for future gains in the IRA to be tax free in exchange for being taxed on the converted amount.
Seniors considering this conversion are encouraged to consult with a tax professional prior to making the change. Adding money to other taxable income for 2010 can change your tax bracket status. This can have an adverse effect on deductions, exemptions, and potential credits.
If you have already converted but find it is not really to your financial benefit you can reverse the conversion. Switching back is called recharacterization, and is accomplished with paperwork.
Home Care Path www.homecarepath.com provides non-medical in home custodial care for seniors in south central Wisconsin.
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