Written by Monica Sandler

Tuesday, 04 August 2009 15:12

With the markets rebounding from their March lows there is lots of optimism in the air. How fast the recession will turn into growth depends on how quickly the companies start hiring, consumers start spending, and banks begin lending. However, one thing is sure: for those looking to move retirement funds from traditional IRAs to Roth IRAs now is a good time. The move should save you cash by minimizing the taxes due to lower current gains in your portfolio, and allow to take advantage of tax free earnings with Roth IRA.

To remind, the main difference between the Traditional IRA and Roth IRA is in their taxation. Contributions to a traditional IRA are tax free, but gains on those contributions are taxed at withdrawal. Roth IRA holders pay taxes before contributions, but enjoy tax free investments and gains forever. These and other differences are briefly summarized in this table. When you convert a Traditional IRA to a Roth IRA you have to pay taxes on gains.

	Traditional IRA	Roth IRA
Contributions	Tax deductible	Not tax deductible
Age restrictions	Withdrawals between 59 1/2 and 70 1/2	None
Taxes	Paid on earnings at withdrawal	All account tax free
Investments	No restrictions	No restrictions
Income restrictions	None	Single earning below $95,000 or family earning $150,000
Early withdrawal	10% penalty	No penalty

If your account is still down the average 30% in value, you may want to act fast to take advantage of lower taxes. "Stocks could take any direction they want from now", says Nate Threebes at Ameri-Financial, "But if you've already lost substantial value in your portfolio, you will reduce the impact of transferring your taxable dollars when rolling your funds into a Roth, and you will also start earning tax-free. Both at the same time! This is a rare opportunity, and if used today, it will maximize your gains as the market goes up in the long run."