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Veteran Services: Finance Questions

Finances

You're working, and you've got a family that depends on you - both now and down the road. Where do you invest your money? Do you borrow against the equity in your house? Through a preferred provider relationship with USAA, The American Legion can provide expert financial advice to just about any question.

Questions & Answers

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Financial Questions & Answers

Question:

Is it feasible, and would it be costly, to take an IRA Certificate and have it moved into a Roth IRA Certificate? This would be in excess of $100,000.– Warren

Answer:

When you move money from a traditional IRA to a Roth IRA you are executing what is called a conversion. To determine whether it makes sense or not, we would need a lot of facts and figures that you haven’t provided. However, we can give you some things to think about.

First, whether or not your Certificate of Deposit could retain its terms and conditions through the conversion would be a question your bank or deposit institution would be able to answer. The biggest cost associated with such a move would be the income taxes due upon conversion. For example, if you converted $100,000 this year you would be adding $100,000 to your income for 2011, assuming you did not make any non-deductible contributions to the IRA. Depending on your other income, this could create a tax bill of tens of thousands. We’d call that costly! However, that doesn’t mean it doesn’t make sense. If you anticipate that you’ll be paying higher taxes in the future, a conversion may be right for you. What definitely makes sense is sitting down with your CPA or financial planner and doing some serious number crunching. It may be that it makes the most sense to convert a little bit each year instead of doing a full conversion. But again, there are a lot of tricky rules, so we advise you to receive help from a pro where you can lay out all the facts.