Should You Convert Your IRA to a Roth IRA?

Should You Convert Your IRA to a Roth IRA?

In some circumstances, it makes sense for individuals to pay the taxes on their retirement savings early. A Roth IRA is funded with after-tax dollars, which means all qualified withdrawals can be made tax free. In addition, Roth IRAs do not have the required minimum distributions mandated by the Internal Revenue Service that other retirement accounts do after you reach age 70 1/2.

However, you cannot contribute to a Roth IRA for this year if your income is more than $135,000 as a single filer or $199,000 for married couples filing jointly. There are, however, ways you can convert funds in an existing IRA to a Roth IRA, regardless of your income level.

Below are a couple examples of common scenarios in which you might choose to do this:

  • You think your tax bracket will be higher when you retire: In this case, paying taxes at a current tax rate is better for you financially than paying taxes at a higher rate after you’ve stopped working. This is a more common scenario for people who have not yet reached their peak earning years, or who have already built up a large amount of savings in their retirement accounts.
  • Your goal is to maximize your estate’s value for your heirs: If you don’t think you will need to use your IRA funds during your life, converting those funds to a Roth allows them to keep growing without being diminished by required minimum distributions. This leaves more money for your heirs, who will then be able to take out tax-free withdrawals themselves.

To learn more about how to convert your IRA money into a Roth IRA, meet with a knowledgeable Tampa estate planning lawyer at BaumannKangas Estate Law.