Converting a Traditional IRA to a Roth IRA?

Should you convert a Traditional IRA into a Roth IRA?

 

A simple question, with a complex answer. Let me first outline the basic points of each:

 

With a Traditional IRA, you get a tax deduction for contributions made during the contribution period. The earnings on the account balance grows tax deferred. Both contributions and earnings are taxed when the funds are withdrawn from the account.

 

There are many restrictions, limitations and distribution rules for Traditional IRAs, including earned income requirements, whether or not you are an active participant in a company retirement plan, adjusted gross income (AGI) limitations, and your age, to mention a few.

 

With a Roth IRA, you get no tax deduction for contributions made during the contribution period. The earnings on the account balance grows tax free. And both contributions and earnings are tax free when the funds are withdrawn from the account as long as you have met the age and length of account life requirements.

 

Like the Traditional IRA, the Roth IRA also has some restrictions and limitations rules, including earned income requirements and AGI limits.

  

So, should you convert a Traditional IRA into a Roth IRA?

 

The answer depends on a number of variables, such as your current tax bracket, your future tax bracket, the length of time of tax deferral, the length of time of distribution, your current investment rate, your future investment rate, etc.

 

I can "crunch" the numbers, based on your best guess of the future variables, to see if converting would save you dollars in the long run. If you would like to see how the numbers work out, contact my office to set up an appointment.