To my Democratic friends who think Republicans are bad, I offer the example of Senator William Roth of Delaware.  In addition to voting for the Brady bill and for banning semi-automatic weapons, he was also responsible for Roth IRAs, an often overlooked retirement vehicle since 1998.

With a traditional IRA, you get an income tax deduction for putting money aside and watching it grow tax-deferred.  Of course, you pay income tax on your IRA withdrawals, but you’ve enjoyed tax-deferred growth and most people are in a lower tax bracket when they retire.  With a Roth IRA, you don’t get an income tax deduction now, but you don’t pay income tax on your withdrawals later – ever – a tax-free source of income – forever – think about that!

In fact, having money in a Roth IRA is so much better than a traditional IRA that many people, especially younger people, “convert” or transfer funds from their traditional IRA into their Roth IRA.  They pay income taxes on the amount transferred, but the remainder grows tax-free forever.  While there are limits on annual contributions to a Roth IRA (for example, $6K if age < 50), there is no limit on the amount “converted” or transferred from a traditional IRA into a Roth IRA.

This year, taxpayers are stepping up their “conversions” or transfers, as they expect tax rates to be higher next year than this year.  Better to pay the tax now and watch it grow forever, they reason.  For most people, there is no limitation on the amount of the transfer, but always consult with your advisor first.

Did I mention that December 31st is coming up soon . . . ??