A few weeks ago I finally rolled over my old 401k into an IRA at Zecco. It would have been easier if I could have directly rolled it over to a Roth, but they and all the other online brokers that I looked into required that the 401k be rolled over to a traditional IRA, then converted to a Roth. It was an extra step, but really not much of a hassle.
As you probably have heard converting an IRA to Roth is a really good idea this year. The government is offering some very rare and kind exceptions.
U.S. Tax Rates
After watching a video that talked about the historical tax rates in the U.S., I decided I needed to get all my retirement money into a Roth. Did you know that tax rates have been over 90%? I had no idea that taxes had ever been than high.
Granted it was for the richest Americans, but still if you compare that to the 35% top tax rate that we currently have you can see how we might be getting off pretty easy. And with government spending off the charts, you can bet that we will see taxes rise in the future.
So what does this have to do with converting to a Roth IRA?
The reason you would convert a Traditional IRA to a Roth is so that you can pay taxes now (at our relatively low tax rates) and not have to pay them later when you make withdrawals. If our tax rates were really high right now and I had a strong hunch that they would be much lower for me – or that I’d be in a lower tax bracket – it might make sense to stick with the traditional IRA. But since I am betting that our U.S. tax rates are going to have to go up, I would rather pay my taxes now at the lower rate.
Gotta pay the piper
The downside to this is that I have to pay extra taxes when I file my taxes next year. I owed money on my taxes for the first time this year and am not really looking to paying the IRS again – but I am convinced that it is worth it. So, that is what I will be saving for.
Back to the IRA conversion
So, I am not sure how IRA conversions work everywhere else, but at Zecco once you have a Traditional IRA established with them it was really as simple as…
- Create a Roth IRA account
- Fill out this IRA Conversion Request form.
- Fax or Mail the completed form back to them
- Wait a few business days
For me after I faxed the form over, I checked back in a week and the conversion was complete. It was really as simple as that.
Have you converted an IRA to a Roth? Are you going to this year?