Roth IRAs have become a persuasive retirement savings vehicle for not only baby boomers, but young adults and individuals starting families as well.
Many people who couldn't qualify in previous years have benefited from the lax restrictions.
However, if you changed your retirement savings plan to a Roth IRA when stocks are high, your taxes might be high as well.
Don't worry - you might be able to get rid of the high taxes.
Roth IRAs are so attractive to people because they have tax-free growth, which is fantastic for retirement savings! One can put their retirement investments into securities, stocks or mutual funds, and can add money without worrying about huge taxes.
However, only a certain amount of your income can be placed in a Roth IRA, which is based on the amount you make.
Although Roth IRAs have little tax growth, if you changed your retirement savings plan to one when stocks were at a high - for example, this past spring - you may have been hit with a surprisingly high upfront tax.
If you hit this problem with your retirement savings, here are some options to prevent the high tax: * Re-characterize the savings back to a regular IRA * Convert your IRA into a Roth one piece at a time These options have significant value; choosing the best for you depends on your retirement budget and income.
Converting chunks of your retirement savings into the IRA might give you a loophole around the income limits.
For example, if you make more than $120,000 a year you can't add any more money to a Roth IRA.
If this happens, the best option would be to open a regular, nondeductible IRA and convert it into a Roth, a little bit at a time.