IRA rollovers. It's enough to send you to sleep. But if you resist the temptation to let IRA rollovers make you snore you'll find that there are excellent reasons to do one do an IRA rollover to a Roth IRA.
The basic differences between a traditional IRA and a Roth IRA are simple. There are regulatory differences of course, but the basics come down to tax.
The whole reason for setting up your own Individual Retirement Account is that it is a very tax advantaged way of investing for your retirement. The government wants us to invest for retirement, because if we provide for our own retirement we reduce the amount that the government will need to spend on retirement benefits, so they offer us tax advantages to encourage us to invest for our retirement.
And these tax advantages are offered to people who set up an IRA. If you have an IRA you can add funds to it from your income and these are not taxed in the traditional way.
Normally of course when you earn money you have to pay tax on it, then you invest this after tax money. But if you could invest before tax money you could invest a much larger amount of money, and so as it is a larger sum it can grow faster, and with the power of compounding it should grow to a much larger amount than using after tax income.
The government allows us to invest for our retirement through an IRA using before tax money, so we get the advantages I've just outlined. And then we pay tax when we take the money out rather than before we put it in. And as we are probably going to be on a lower tax rate at that stage, because we have retired, this is also a tax advantage.
However the tax advantages for those setting up a Roth IRA, or doing a rollover to a Roth IRA, are different. Rather than pay no tax at the beginning of the investment, then paying tax at the end, those who own a Roth IRA have the tax burden reversed. If you have a traditional IRA and do a rollover to a Roth IRA you have reversed the tax burden.
So you pay tax before you invest the funds, but you pay no tax when you use them.
Who will benefit from doing an IRA rollover to a Roth IRA, or just setting up a Roth IRA right at the start? Well if the tax is paid at the beginning of the investing rather than at the end those who will benefit from a Roth IRA are those who are likely to be on a lower tax rate when they are investing, and on a higher tax rate when they are retiring. So if they're income from investing is expected to grow vigorously, and their income from those investments will be higher in retirement than when they were earning a wage, a Roth IRA will be a better retirement vehicle.
And if that person already has a traditional IRA they are better off to do an IRA rollover to a Roth IRA rather than retain their traditional IRA. If this could be you you need professional advice.
One further point. The best IRA to have, whether it be traditional or a Roth, is to have a self managed IRA, or what is also known as a self directed IRA. There are huge advantages of managing your own IRA.
A traditional IRA uses the services of a custodian like a bank. They will usually direct your funds into their own products, which could be good for the bank, but you may well find that you don't get a particularly high rate of return. But if you have a self managed IRA you can direct your custodian where to invest the funds.
One of the best long term investments, no the very best long term investment, is real estate. This has been proven true over centuries, and includes right now. And if you have a self managed IRA you can direct your retirement funds into real estate investments.
And even now the best real estate investments for an IRA will outperform any other investments over time.
So if you think you need a Roth IRA, rathaer than a traditional IRA, you need to undertake an IRA rollover into a Roth IRA soon. It may put you to sleep, but you'll appreciate it when you retire.
And make sure when you do your rollover that you rollover into a self managed Roth IRA, and invest your retirement funds into the best real estate investments around right now, because even in these hard times there are some excellent real estate investments available if you know where to find them.
The basic differences between a traditional IRA and a Roth IRA are simple. There are regulatory differences of course, but the basics come down to tax.
The whole reason for setting up your own Individual Retirement Account is that it is a very tax advantaged way of investing for your retirement. The government wants us to invest for retirement, because if we provide for our own retirement we reduce the amount that the government will need to spend on retirement benefits, so they offer us tax advantages to encourage us to invest for our retirement.
And these tax advantages are offered to people who set up an IRA. If you have an IRA you can add funds to it from your income and these are not taxed in the traditional way.
Normally of course when you earn money you have to pay tax on it, then you invest this after tax money. But if you could invest before tax money you could invest a much larger amount of money, and so as it is a larger sum it can grow faster, and with the power of compounding it should grow to a much larger amount than using after tax income.
The government allows us to invest for our retirement through an IRA using before tax money, so we get the advantages I've just outlined. And then we pay tax when we take the money out rather than before we put it in. And as we are probably going to be on a lower tax rate at that stage, because we have retired, this is also a tax advantage.
However the tax advantages for those setting up a Roth IRA, or doing a rollover to a Roth IRA, are different. Rather than pay no tax at the beginning of the investment, then paying tax at the end, those who own a Roth IRA have the tax burden reversed. If you have a traditional IRA and do a rollover to a Roth IRA you have reversed the tax burden.
So you pay tax before you invest the funds, but you pay no tax when you use them.
Who will benefit from doing an IRA rollover to a Roth IRA, or just setting up a Roth IRA right at the start? Well if the tax is paid at the beginning of the investing rather than at the end those who will benefit from a Roth IRA are those who are likely to be on a lower tax rate when they are investing, and on a higher tax rate when they are retiring. So if they're income from investing is expected to grow vigorously, and their income from those investments will be higher in retirement than when they were earning a wage, a Roth IRA will be a better retirement vehicle.
And if that person already has a traditional IRA they are better off to do an IRA rollover to a Roth IRA rather than retain their traditional IRA. If this could be you you need professional advice.
One further point. The best IRA to have, whether it be traditional or a Roth, is to have a self managed IRA, or what is also known as a self directed IRA. There are huge advantages of managing your own IRA.
A traditional IRA uses the services of a custodian like a bank. They will usually direct your funds into their own products, which could be good for the bank, but you may well find that you don't get a particularly high rate of return. But if you have a self managed IRA you can direct your custodian where to invest the funds.
One of the best long term investments, no the very best long term investment, is real estate. This has been proven true over centuries, and includes right now. And if you have a self managed IRA you can direct your retirement funds into real estate investments.
And even now the best real estate investments for an IRA will outperform any other investments over time.
So if you think you need a Roth IRA, rathaer than a traditional IRA, you need to undertake an IRA rollover into a Roth IRA soon. It may put you to sleep, but you'll appreciate it when you retire.
And make sure when you do your rollover that you rollover into a self managed Roth IRA, and invest your retirement funds into the best real estate investments around right now, because even in these hard times there are some excellent real estate investments available if you know where to find them.
Want to know more about profitable IRA Real Estate Investing? Visit Peter's Website Win-Win Real Estate Investments and find out more about no money down real estate investing at http://win-winrealestateinvestments.com/
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