Roth IRA may not be best decision for fast cash in retirement

Why to convert back

Many people looking for fast cash converted their IRAs into Roth IRAs. The move may have been a quick one and now some consumers are rethinking the decision. The value of a Roth IRA can be considerably lower than its former value due to the conversion and the taxes that can eat away at any savings. The reason for the high taxation is because consumers have to pay taxes on the full value of the amount converted. This is because contributions to a traditional IRA are on a tax-deductible basis, whereas Roth IRAs are made on an after-tax basis.

There are three reasons why consumers choose to reverse the conversion:

1. The value of the Roth IRA is substantially lower due to the change
2. The consumer wasn’t eligible for conversion, but did it anyway
3. The consumer needs the money spent on taxes

The decision to converting back to a traditional IRA

It is possible to convert back to a traditional IRA, but consumers are warned to do it quickly. The first step is to make sure undoing the decision is the right one. Consumers who lost money due to the recession should make the change back if the losses were significant. A loss of a few hundred dollars most likely isn’t enough to turn back, but a few tens of thousands can warrant the change. For example, if an account holder converted a traditional IRA worth $100,000 with conversion cost at $20,000, then filing an amended return would add up to $5,000 for someone in the 25% tax bracket. That is a large enough loss to warrant a return to the old fund. … click here to read the rest of the article titled “Roth IRA may not be best decision for fast cash in retirement“