ASK YOURSELF RIGHT ROTH IRA QUESTIONS

(Editor 's note: Second in a two-part series on the Roth IRA)

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

Have you ever noticed cows stretching their necks through a fence to eat the grass on the other side? They go to the trouble because the grass is greener over there, of course.

Many traditional-IRA investors see the new Roth IRA as a greener pasture. But whether you should hop the conversion fence to open a Roth IRA depends not only upon the Roth's features, but also upon your individual circumstances.

The Roth IRA enables investors to make tax-free withdrawals, rather than just deferring taxes on future investment earnings. On the other hand, you get no tax relief at the time you make contributions to the Roth, because money goes into the account after taxes are paid.

If you convert your traditional IRA to a Roth IRA, you'll have to pay taxes now on the converted funds, but it could be worth it to receive all future earnings tax-free.

The following questions will help you decide whether to convert. How will you pay the conversion tax? In most cases, conversion will not make sense if you have to take the money out of your IRA to pay the taxes.

What will your future tax bracket be? The advantage of tax-free withdrawals from a Roth IRA is reduced if you expect to be in a much lower tax bracket when you begin withdrawals.

How long will your funds stay in the IRA ? The longer you let your IRA money accumulate before withdrawals, the greater the advantage of the Roth IRA.

What's the taxable amount in your existing IRA? If you've made primarily nondeductible contributions in the past, it may not cost you much to convert. The lower your tax bite, the wiser conversion might be.

Do you plan to leave your IRA money to heirs? Unlike other IRAs, Roth IRAs do not require that you start taking money out when you reach age 70 1/2. You can let your funds compound tax-free for as long as you live and leave money to the next generation.

Although answering the above questions will help you consider whether to choose a Roth, it's a good idea to speak with a financial professional or tax consultant before finalizing any decisions. That way, you'll be sure you've chosen the "pasture" that's just right for you.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.