What is a Roth conversion?

A Roth conversion is the process of moving assets from a tax-deferred retirement account, such as a traditional IRA, into a tax-exempt Roth IRA. This typically involves paying income tax on the converted amount in the year the transfer occurs.

Why would someone consider a Roth conversion?

A Roth conversion may be beneficial if you expect to be in a higher tax bracket in the future or if you wish to provide tax-free assets to heirs. Because the tax is paid upfront, future growth and qualifying distributions are generally tax-free.

Are there income limits for Roth IRA conversions?

There are no income limits for performing a Roth conversion, but the converted amount is treated as taxable income, which could potentially push you into a higher tax bracket for that year.

Should You Consider a Roth Conversion?

Written and reviewed by Brandon VanLandingham, CFA, CMT, CFP® · Last updated April 22, 2023

Quick answer

A Roth conversion may be worth considering if you expect higher future tax rates, have time for tax-free growth, and can pay the conversion tax from non-retirement funds. In exchange for paying ordinary income tax now, qualified Roth IRA withdrawals can be tax-free later, which may improve retirement tax flexibility.

Key takeaways

A Roth conversion transfers assets from a Traditional IRA to a Roth IRA, and the converted amount is generally taxed as ordinary income in the year of conversion.
Qualified Roth IRA withdrawals are generally tax-free if the account has been open at least 5 years and the owner is age 59½ or older, or another IRS exception applies.
Using non-IRA funds to pay the conversion tax can help preserve more retirement assets inside the Roth IRA for future growth.
A Roth conversion does not avoid taxes altogether; it shifts taxation from future withdrawals to the year of conversion.
Comparing current tax rates with expected future tax rates is a core rule in evaluating whether a Roth conversion may make sense.

Have you ever thought about converting a portion of your Traditional IRA to a Roth IRA.

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Frequently Asked Questions

What is a Roth conversion?: A Roth conversion is the process of moving assets from a tax-deferred retirement account, such as a traditional IRA, into a tax-exempt Roth IRA. This typically involves paying income tax on the converted amount in the year the transfer occurs.
Why would someone consider a Roth conversion?: A Roth conversion may be beneficial if you expect to be in a higher tax bracket in the future or if you wish to provide tax-free assets to heirs. Because the tax is paid upfront, future growth and qualifying distributions are generally tax-free.
Are there income limits for Roth IRA conversions?: There are no income limits for performing a Roth conversion, but the converted amount is treated as taxable income, which could potentially push you into a higher tax bracket for that year.

Should I Consider Doing a Roth Conversion

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Frequently Asked Questions

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