In determining whether converting a traditional IRA to a Roth IRA benefits a particular taxpayer’s situation, many additional factors must be weighed. These include the following.

  • The taxpayer’s present income tax rate versus the rate expected during retirement — If the taxpayer expects to be in a higher tax bracket after retirement, the option of converting from a traditional IRA to a Roth IRA should be given serious consideration.
  • Taxpayer’s income needs—Does the taxpayer need to take distributions from the IRA, or do they prefer to pass on the investment to heirs? With a Roth, there is no requirement to take mandatory distributions, whereas, with a traditional IRA, distributions must generally begin by age 72 for taxpayers born after June 30, 1949.
  • Any previous deductible or nondeductible contributions made to a traditional IRA— If the contributions are mostly nondeductible, the tax impact of converting to a Roth is reduced because the investment earnings and deductible contributions are the only items taxed at conversion.
  • Taxpayer’s current income tax rate—If it is lower than usual, it might be a good time to convert the IRA, provided the taxpayer has enough funds available outside the IRA to pay the applicable taxes. However, if converting to a Roth IRA pushes the taxpayer into a higher tax bracket, it might be advisable to wait until a later year to convert or to make only a partial conversion in the current year.
  • The number of years before the taxpayer retires — Generally, the more years until retirement, the more beneficial the conversion, given that there are more years to “earn back” the taxes due at conversion.
  • Available non-IRA funds to pay the taxes due after conversion—If available, the tax-free growth of the
  • Roth IRA can be dramatic compared to investments subject to tax. If not, the conversion may end up costing the taxpayer money.

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