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Living Longer, Living Better | Finance

Roth IRA conversion not for everybody

Conversion from traditional account has long-term advantages but initial tax hit can be a hurdle

Converting a standard individual retirement account to a Roth IRA is a great way to avoid an unexpected huge tax hit to your nest egg and create tax-free income for future use. Unless it isn’t.

A Roth IRA’s biggest draw is that it allows investors to reap investment gains tax free; that is, contributions are made with after-tax money, and any gains are not subsequently shared with Uncle Sam later. Investors are allowed to convert a traditional IRA into a Roth, so long as they pay taxes - at current rates - on the balance being converted. That upfront tax payment is the catch.

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