Released: May 04, 2008

Time to switch IRA to Roth IRA?

Source: Martha M. Hamilton, Washington Post (Free Registration)

Panic set in almost as soon as I woke up. The night before, I had rolled over about $130,000 from my traditional individual retirement account to a Roth IRA, thinking it was a smart thing to do. I made the move for tax reasons.

Money you put into a traditional IRA is exempt from taxes until you withdraw it. By contrast, you pay taxes upfront on the money you put into a Roth—but after that, you never pay taxes on either your contribution or your investment gains again.

It seemed a savvy move to sink my funds into a Roth - and suffer the tax bite now - when my funds were substantially less, thanks to the recent market downturn. I would pay lower taxes going in and - more important - I would pay no taxes on gains I expect when the market eventually rebounds.

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