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Pros and Cons of Converting to a Roth

The new year is here, and the 2010 Roth conversion plan is in effect. In the past, many people were restricted from converting their employer-sponsored retirement plans and Traditional IRAs to a Roth because of the income restrictions. Well, the income restrictions are gone, and you can now covert tax-deferred retirement accounts to a Roth, regardless of income.

Pros of Converting to a Roth to Purchase Real Estate

• Tax-free gains on investment returns
  
• Because of economic conditions, you might be in a lower tax bracket this year-conversion taxes are based on current tax rates
  
• For conversions occurring in 2010, the tax liability can be spread over two years (keep in mind that potential long-term profits can make it worthwhile to pay the taxes now)
  

Cons Converting to a Roth to Purchase Real Estate

• Less capital after paying taxes to make investments
  
• Conversion could result in a cash-flow problem
  
• Conversion income could result in putting you into a higher income tax bracket
  

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