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Has Your IRA Lost Value in the Down Market? Do You Think Taxes Will Go up Over the Next Few Years? Take Advantage of It.

In 2010, all taxpayers will have an opportunity to convert their traditional IRAs to Roth IRAs. Currently, there are restrictions based on the level of income and marital status. In 2010 these restrictions will be removed. This is an opportunity for taxpayers to lock in current income tax rates on account values that have lost value because of market declines.

In a traditional IRA, the money is put in tax-free and grows tax-free. However, when you take the money out, you must pay taxes. The tax rate will be based upon the tax bracket you are in at the time you take the money out of the IRA.

Roth IRA is for money on which you have already paid the taxes. However, it grows tax-free, and you do not have any additional taxes when you take the money out.

The new law will allow you to convert some or all of your traditional IRA to a Roth IRA, regardless of your income. Why would you want to do this? There are two good reasons to consider the conversion.

First, the down market provides a unique opportunity to pay the taxes on your reduced value IRA and convert it to a Roth. It will then grow tax-free for any future market recovery. Then, when you take the money out, or even pass it on to your heirs, you can take it out tax-free.

Second, many smart advisers believe that taxes will be going up. With all of the federal spending in the last year, including the bank and auto bailouts, the Seven Hundred Billion Dollar ($700,000,000,000.00) Stimulus Package, the government will need to get that money from somewhere. If taxes go up in the near future, it is worth considering locking in your taxes and the lower (current) rates.

To determine if this strategy is right for you, consult your qualified financial adviser and accountant.

This LINK further analyzes the conversion opportunity.

For those interested in asset protection, you can use the down market to your advantage by protecting your assets in almost half the time it took before the market dropped. Contact Mannor Law Office for more information.


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