tax implications of roth/traditional ira

i work for a third party administrator of employer sponsored retirement plans.
yesterday, we had a meeting/class about 1099Rs that have just gone out. during the class, we talked about 401(k) rollovers into roth iras.

this got me to thinking.

it looks like this year (2009), my tax liability will be a big fat zero. if i rollover my old 401(k) to a roth ira, the additional tax will still be zero.... because of my low income and the divorce and my keeping the house...

so, i'm thinking of going forward with the rollover.

thoughts?
ideas?
comments?

Re: tax implications of roth/traditional ira

What is your motivation for rolling over right now?

Re: tax implications of roth/traditional ira

I "thought" the reason for doing ROTH IRA is so that you dont pay taxes when you draw on the money when you retire. That being said, you must pay taxes on the money now...to reap the benefits in the future.

That is why a Roth IRA is done with after tax money rather than before like a 401K

Maybe they changed the rules but when we meet with our financial advisor during the summer he told us the same thing.

I would look into it further.

Re: tax implications of roth/traditional ira

Re: tax implications of roth/traditional ira

Re: tax implications of roth/traditional ira

Re: tax implications of roth/traditional ira

Re: tax implications of roth/traditional ira

Are you planning to roll over assuming you will not have to pay taxes on the money or are you planning to roll over, assuming you can afford to pay the taxes on that money this year and would prefer to pay it now, rather than when you withdraw from you 401(k)?

Either way, the decision to invest money in tradition vs. roth savings plans (they have roth 401(k)s now, too) should be based on your long-term goals and financial situation. This includes consideration of whether you will be in a higher or lower tax bracket when you retired (compared to now).

Definitely speak to a financial advisor, though. Good luck!

Re: tax implications of roth/traditional ira

this explains it much better than i can

Re: tax implications of roth/traditional ira

Another thing to keep in mind - Not only are you paying taxes on the money now, you're also selling off what's in your 401(k) at a loss. You could argue that you'll be buying low when you buy into securities in your Roth IRA account, but I still wouldn't sell off my 401(k) assets right now. I'd be taking a huge loss.

Definitely keep long-term in mind in making this decision. Roth plans work for many people. Personally, I think it's a better idea to keep your money in your 401(k), keep contributing to your 401(k), and also contribute as you can to your Roth IRA... but I'm NOT you and I'm not a financial advisor and those are the only two people whose opinions on this should matter to you.