Converting traditional IRAs to Roth IRAs is more popular now that all taxpayers can do so, regardless of income. You pay tax upfront but you may enjoy tax-free withdrawals after five years and after age 59 1/2.
Such conversions are relatively simple if your IRA holds only traditional assets: stocks, bonds, funds, bank accounts, etc. However, many people hold IRA assets that are nontraditional: shares in closely-held companies, ownership of real estate assets, mortgages, property tax liens, and many others.
Converting such assets to a Roth IRA may cause complications:
* Valuation. You may have to pay for a valuation at the time of the conversion. This valuation will determine the income tax you’ll owe.
* Ownership. Technically, the ownership of each IRA asset changes from your traditional IRA to a Roth IRA. Changing title may involve more time and effort with nontraditional assets.
* Contracts: Any formal arrangements with tenants, insurers, etc., will have to be redrafted to reflect new ownership.
Converting a nontraditional asset to a Roth IRA may have long-term benefits but the initial process can be costly. Check with your IRA custodian for details before making any decisions.
