IRAs and Company Retirement Plans


Most of our clients have a significant portion of their wealth in IRAs and company retirement plans. There may be a benefit to moving money among different plans, each of which involves its own set of costs and benefits.

One such opportunity is the “Roth conversion.” If you have a traditional IRA (one in which you got a deduction each time you made a contribution to the account), distributions from the account (presumably during your retirement) will be treated as taxable income. Distributions from a Roth IRA are tax-free.

You may convert all or a portion of a traditional IRA to a Roth IRA and make future distributions tax-free, but there is a cost: The amount of the conversion is taxable income in the year of the conversion. It is good planning to make conversions when income is down, and you can report the income from the conversion in a lower tax bracket.

You can roll funds over from a traditional IRA to a Roth IRA regardless of your adjusted gross income. The 10% early withdrawal penalty will not apply to the rollover. However, if rolled over funds are withdrawn within the five-year period that renders them taxable, the 10% penalty will apply to the withdrawal.

A conversion from a traditional IRA to a Roth IRA is not subject to the one-rollover-per-year rule and is disregarded in applying the limitation to other rollovers. With the myriad retirement plans in existence now it makes good tax sense to really analyze your current plans and strategize for the future to determine if a different plan may make sense.