A Roth Ira Is Typically Better Than A Traditional Ira For Most Americans But Which Path Should You Follow

Roth IRA Conversion Rules: When It Makes Sense to Convert

Understanding Roth IRA Conversions

Roth IRAs offer tax-free growth and tax-free withdrawals in retirement. Converting traditional IRAs to Roth IRAs can provide significant benefits, but it's important to understand the rules and consider your individual circumstances.

Key Rule: You must pay income tax on the amount converted in the year of conversion.

Factors to Consider for Conversion

When Conversion Makes Sense:

• You expect to be in a higher tax bracket in retirement than during your working years.
• You want to reduce future income taxes.
• You have non-deductible traditional IRA contributions.

When Conversion May Not Be Advisable:

• You expect to be in a similar or lower tax bracket in retirement.
• You need immediate access to funds.
• You have significant traditional IRA balances.

How to Convert a Traditional IRA to a Roth IRA Online

Many financial institutions offer online IRA conversion services. The process typically involves the following steps:

1. Log in to your IRA account.
2. Choose the "Convert to Roth IRA" option.
3. Enter the amount you wish to convert.
4. Review and confirm the details.
5. Submit the conversion request.

Note: The conversion process may take several days to complete.

Tax Implications of IRA Conversions

The amount converted is subject to income tax in the year of conversion. You may also owe additional taxes if you have non-deductible traditional IRA contributions.

Tip: Consider consulting with a tax professional to determine the potential tax impact of an IRA conversion.

Additional Resources

• Internal Revenue Service: Roth IRAs
• Fidelity: IRA Conversions
• Vanguard: Understanding Roth IRA Conversions