Broker Check

Is it Time to Consider Roth Conversions?

October 26, 2018

Is it time to consider if you are adequately utilizing different types of retirement savings account for your future?


A Traditional IRA is comprised of pre – tax money, therefore, when you take money out in retirement (age 59.5 or later) it is fully taxable as income. A Roth IRA on the other hand is comprised of post – tax money, grows tax free, and is tax free when withdrawn in retirement (age 59.5 or later) if a few rules are met.


What is a Roth IRA Conversion?

A Roth IRA conversion is when you move all or part of a Traditional IRA balance into a Roth IRA.


Potential reasons to consider a Roth IRA conversion:

  • Minimize tax burden in retirement by paying taxes now and allowing money to grow tax free then be withdrawn tax free in retirement (given certain rules are met)
  • Leave a tax-free inheritance to your heirs. Your heirs will have to take required minimum distributions from the inherited Roth IRA, however, distributions are tax-free.
  • While the majority of retirement accounts mandate required minimum distributions at age 70.5 (whether you actually need/want the money or not), account owners of a Roth IRA are not required to take required minimum distributions. Your money can remain in the Roth IRA and grow tax free for longer.


Other considerations:

  • The money you convert from a Traditional IRA to a Roth IRA is fully taxable in the year of the conversion.
    • If you are in a low tax bracket or believe your tax bracket will be higher later in life, it may be worthwhile to seriously consider a conversion.
    • The conversion could place you into a higher tax bracket which you likely want to avoid.
  • What’s the money for and when will you need it, if ever?
  • Money converted to a Roth IRA is subject to a 5-year holding period on withdrawals. Exceptions may apply if age 59.5 or older.
  • Money converted from a Traditional IRA to a Roth IRA cannot be reversed.


Every situation is unique and a number of factors should be considered to determine if a Roth IRA conversion is right for you. There can be tremendous benefit if the situation is right for you. We recommend you speak with your financial planner to analyze the situation given your specific goals and needs.