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Put Money In a Roth IRA Retirement Fund Every Year, Even If You Just Move Funds from Brokerage Account
Is It Worth It To Transfer Savings or Investments to a Roth IRA, Even If You Aren't Saving More Money?
Yes. It is smart to transfer funds from your savings account to a Roth IRA, even if you are just moving savings from one bucket into another bucket and not net saving more money. By the same token, you should consider moving brokerage funds or any other cash or investments that you have available to a Roth individual retirement account if you can't afford to set aside in savings more of your salary or actual income.
You should convert as much money every year as you can afford, and as is legally allowed, because that money will grow tax-free. In 2010, you can put up to $5,000 in a Roth IRA.
Here is why it is better to move as much money as you can from one savings account into a Roth IRA rather than leave your savings where they are: Any money you move into a Roth IRA is tax free forever. Hear that? Forever.
You have already paid taxes on the money in your Roth IRA. If you put in $3,000 this year, it doesn't matter if the tax rate goes up to 60% by the time your retire in 30 years because you paid taxes on that money when the tax rate was 30%. You never need to pay any additional taxes on the account's earnings.
This is also why you should put as much into your Roth IRA every year as you can reasonably afford to put in, even if you are just shuffling money between accounts.
It is true that your Roth IRA may get a lower return than your brokerage account. Because of the long-term tax benefit to a Roth IRA — you get the money tax free when you go to withdraw it in 30 or 35 years — it is smart to put as much money in a Roth IRA every year as you can afford.