Convert Traditional IRA to Roth IRA While in a Combat Zone

Roth vs. traditional IRAs: A comparison

Why invest in an IRA.

I opened my first Vanguard Roth IRA this week and put in the max $5, It is currently all sitting in one account the Vanguard Prime Money. I am looking at starting a Roth IRA and leaning towards Vanguard due to a plethora of options available, although Schwab is a close second.

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But make sure you understand the tax consequences before using this strategy because a Roth conversion is permanent—the contribution can't be moved back to a traditional IRA. The younger you are when you open your IRA, the greater your saving potential because you get that tax-free compounding clock ticking longer and harder for you. An amount used to determine a taxpayer's IRA eligibility.

Generally, it's the taxpayer's adjusted gross income calculated without certain deductions and exclusions. The snowball effect that happens when your earnings generate even more earnings, not only on your original investments, but also on any interest, dividends, and capital gains that accumulate. That means that your "money makes money" and can grow faster over time.

Your use of this site signifies that you accept our terms and conditions of use Open a new browser window. Skip to main content. Search the site or get a quote. Get details on IRA withdrawals. Learn more about inherited IRAs. Roth IRA contributions are never tax-deductible. Get details on Roth IRA income limits.

In addition, most married couples filing a joint return—even those in which one spouse has little or no compensation—can make IRA contributions. The maximum they can contribute is two times the annual per-person limit.

However, neither spouse can exceed the individual contribution limit for a particular year for his or her IRA. For more information, check our IRAs area. A Roth IRA offers tax-free investing: Although contributions to Roth IRAs aren't tax-deductible, you're never required to make withdrawals, so your assets can grow tax-free throughout your life. The beneficiary of a Roth IRA may be required to take withdrawals.

You must not exceed certain income limits to qualify for a Roth IRA. The answer depends on your financial situation now and what you expect it to be in the future. For example, if you're a participant in an employer-sponsored retirement plan and you have a relatively high income up to certain limits , a Roth IRA may be the appropriate choice because a contribution to a traditional IRA wouldn't be deductible on your tax return.

If you exceed the income limits for a Roth IRA, the only choice you'll have is to make after-tax contributions to a traditional IRA—which still allows your investments to grow tax-deferred. When deciding on a type of IRA, it also helps to think about how your tax situation might change following retirement. If you expect to be in a lower income tax bracket when you retire, a traditional IRA may be more suitable.

Because contributions may be tax-deductible now depending on your income , and you'll probably pay taxes at a lower rate when you make withdrawals. Our comparison chart highlights the features of traditional and Roth IRAs.

There's no limit to the number of IRAs you can own, but there are strict limits on how much you can contribute to these accounts during any given tax year. These limits apply to all your IRA contributions—both pretax and after-tax—but exclude employer contributions to a SEP. You should consider the cost of maintaining multiple IRAs. In general, many people find it advantageous to consolidate their IRA assets into a few accounts—depending on whether they have traditional and Roth IRAs.

It also simplifies recordkeeping. The five-year holding period begins on January 1 of the year for which your first Roth IRA contribution was made or in which your first Roth IRA conversion was completed, whichever is earlier. So if you opened your first Roth IRA on April 15, , with a contribution for tax year , you will have met the five-year minimum on January 1, With a k rollover , you can transfer mutual fund assets and employer stock from most employer-sponsored plans to a Vanguard IRA.

Moving your assets to a traditional IRA is an excellent way to keep your investments growing tax-deferred—and it's not difficult to do. Be sure your assets move directly from your former employer's plan to Vanguard—without ever going through your hands. To make sure you take the right steps, call and talk with a retirement specialist who can help you with the paperwork and provide guidance on your asset allocation.

If your employer plan is held at Vanguard, call As of January 1, , you are eligible to rollover your non-Roth employer-sponsored plan such as a k plan directly into a Roth IRA, assuming you are eligible for a conversion. A conversion is treated as a taxable distribution from the traditional IRA. The distribution amount is counted as part of your gross income in the year you take the distribution except for the portion that represents after-tax contributions or after-tax rollovers.

To learn more, call a Vanguard retirement specialist at Monday through Friday from 8 a. That's because Vanguard helps you every step of the way.

If you're not sure what forms you need or how to complete them, a Vanguard retirement specialist can help.

Why should you open an IRA at Vanguard?

Some of this basis will hang around until all of your Traditional IRAs as defined here are empty and you will have to file Form each year until then.

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I am actually meeting with the K guy at my company tomorrow. Notify me of new posts by email.

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