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Roth conversions: Do ‘homework’ and factor in higher education

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in Leaders & Managers,Management Training,Small Business Tax,Small Business Tax Deduction Strategies

The decision to convert funds in a traditional IRA to a Roth this year is hardly a slam-dunk. To reach a well-informed conclusion, you must take the relevant factors into account. This can be especially tricky for some parents of college-bound children.

Strategy: Consider all the higher-education aspects. If you’re not careful, converting might do your family more harm than good.

A Roth IRA conversion results in extra taxable income that may affect eligibility for (1) need-based financial aid and (2) education tax credits.

Here’s the whole story: Unlike a traditional IRA, contributions to a Roth IRA are never tax-deductible. But other tax benefits are available on the back end. For starters, qualified distributions from a Roth in existence at least five years are completely tax-free.

Furthermore, you don’t have to take Roth distributions during your lifetime, as opposed to traditional IRAs requiring minimum annual distributi...(register to read more)

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