Factors To Consider When Deciding Whether to
Convert an IRA to a Roth IRA Account
Written by: Steven J. Fromm, J.D., LL.M. (Taxation)
Whether to convert an IRA to a Roth IRA involves many factors. In many cases, it is difficult to know with certainty what is the best course of action. The following are some factors that may aid in this decision.
You should consider converting to a Roth IRA if the following apply to your situation:
- You expect your tax rate to be higher in retirement
- You do not think you will need the money for living expenses
- Your investment horizon is long enough to benefit from the tax-free growth of a Roth IRA
- You can afford to pay taxes on the conversion using separate funds.
Consider Not Converting
You should probably not convert your IRA in the following situations:
You expect a lower income tax rate at retirement
You will need the funds for living expenses.
You lack separate funds to pay taxes.
You plan to donate the entire IRA to charity. You may want to donate only a portion, so you could split the IRA into the Roth and give the balance to charity.
Run Projections and Get Professional Guidance
The above are just some of the issues to consider here. In addition, you should meet with a tax attorney or your tax accountant to run various income, cash flow and tax projections to determine with more certainty which option to consider.
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