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Jun 28 2010 12:00AM

Question


I have about $3,800 invested in a traditional Individual Retirement Account (IRA) at my local credit union. I have heard a lot of talk about moving the money to a Roth IRA. I have no idea what a Roth IRA is nor how to transfer funds. Is that a good idea?

Answer


According to FPA member James Rawlings, CFP®, of Oakbridge Asset Management, converting your IRA to a Roth IRA can be a very good idea, but there are also times when it is not such a great strategy. “It will depend upon your situation,” Rawlings said. “Generally, this strategy seems to work best for people who are currently in a lower tax bracket and anticipate that by the time they pull money out of the IRA that they will be in a higher tax bracket. Also, the longer that you leave your money in the IRA the more time that it allows you to recoup the cost of the conversion as the dollars that are converted become currently taxable."

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