Get Converting To A Roth IRA

You'll owe income tax on the entire amount that you convert from a traditional IRA into a Roth IRA in the year you make the switch. The amount of tax will depend on your income tax bracket and income tax rate—between 10% and 37%. 1 The money you convert is added to your gross income for the tax year.

When you're considering a Roth conversion, you'll need to pay attention to your total income as well as your annual cash flow. If, in a simple example, you convert $100,000 of pre-tax money in a 401(k) to a Roth IRA, and you're in the 25% federal tax bracket, you'll owe $25,000 in tax just on the conversion alone.

If you own a traditional IRA or other non-Roth IRA, or have an old workplace retirement plan such as a 401(k), 403(b), or 457(b), you can pay taxes on your account to move your savings to a Roth IRA, letting you enjoy the potential for future tax-free growth.

Overall, converting to a Roth IRA might give you greater flexibility in managing RMDs and potentially cut your tax bill in retirement, but be sure to consult a qualified tax advisor and financial planner before making the move, and work with a tax advisor each year if you choose to put into action a multiyear ...

Roth conversions also have potential drawbacks including withdrawal rules and raising your taxable income for the year.

When you convert from a traditional IRA to a Roth, there's a tradeoff. You will face a tax bill—possibly a big one—as a result of the conversion, but you'll be able to make tax-free withdrawals from the Roth account in the future.

Overall, converting to a Roth IRA might give you greater flexibility in managing RMDs and potentially cut your tax bill in retirement, but be sure to consult a qualified tax advisor and financial planner before making the move, and work with a tax advisor each year if you choose to put into action a multiyear ...

Converting a traditional IRA into a Roth IRA can provide tax-free income and estate planning advantages in the future. But you'll have to pay taxes on the money now, at what could be a higher rate than you'll owe in retirement.