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Considering a Roth Conversion?

Considering a Roth Conversion?

February 15, 2022


We’ve discussed this topic in the past but we believe analyzing the benefits a Roth conversion can provide is worth revisiting. See below for items to consider when making your decision.

  • Income Taxes – converting funds from a traditional IRA to a Roth will be taxed at ordinary income rates. Converting in low-income years is best to keep taxes on the conversion low. To maximize the conversion, consider paying the tax with cash on hand. This will allow more money to grow at the tax-free rate.
  • 5-year waiting period – You cannot withdraw earnings tax-free until five years after your first contribution.
  • Tax-Free Growth – once invested in the Roth, funds grow tax-free until you’re ready to withdraw (after age 59 ½). This tax-free growth is one of the best benefits in opening or converting to a Roth IRA.
  • Early Withdrawal – earnings will be taxed at ordinary income rates and a 10% penalty if withdrawals are made prior to age 59 ½.
  • No RMDs – there are no required minimum distributions at any age. These assets can grow indefinitely tax-free.
  • Legacy – even heirs enjoy tax-free status of inherited Roth IRA accounts. They must empty the accounts by December 31 of the tenth year following death.

Feel free to give us a call to discuss your conversion strategy, or if we can help you run the numbers and see if it makes sense.


Matt and Andrew

*Consult with a tax professional before making any decisions regarding Roth conversions or contributions.