Should I Convert To a Roth IRA?

Roth IRA is a great way for clients to create tax-free income from their retirement assets. Yet, keep in mind that when you convert your taxable retirement assets into a Roth IRA you will generally pay ordinary income tax on the taxable amount that is converted. The conversion amount is not subject to the 10% early distribution penalty. Your tax-free potential is maximized if you pay the taxes from your current income or personal savings and not from your IRA. Individuals of all income levels are eligible to convert to a Roth IRA.



Both a Roth and a traditional IRA help you save money for retirement. However, they differ in the tax breaks they offer you. With a traditional IRA, the money you put into your contributions is tax deductible. You get a tax break now, but when you take out money in retirement or before retirement, you are taxed on that income.

With a Roth IRA, the money you withdraw from the account in retirement is tax-free, so you save on taxes then. In a Roth IRA, you pay taxes on the money you contribute, so you pay taxes now.

If you expect your tax burden to be greater after retirement or if you don’t want to pay taxes then because you’ll be on a budget, a Roth IRA may be right for you. It allows you to pay taxes now, when you’re probably earning more, so you can save on them when you might need every dollar. If you pay higher taxes now, though, a traditional IRA may make more sense because it can save you money now, so you have more to put toward contributions. If you expect your earnings to be smaller in retirement, your tax burden will also be smaller and you may need a tax break less.

Should I Switch?

If you currently have a traditional IRA, part of the reason may be because you didn’t qualify for a Roth IRA due to your higher income. If this is the case, you may be able to switch from a traditional to a Roth IRA to set up what is known as a backdoor Roth IRA.

If you have been saving for a while, you should be aware IRS rules regarding Roth IRAs do change. Under current rules, you may qualify for a conversion if you meet certain qualifications and you pay tax on the conversion. By making the switch, you can ensure you don’t have to pay taxes on your withdrawals in your golden years.

Use the Money Help Center free calculator to find out whether making the switch makes sense for you and your retirement plans. Our free calculator lays out the information in an easy-to-understand format, so you can make the right choice.

How Much Should I Contribute to My Roth IRA?

If you do have a Roth IRA or decide to make the switch to this kind of account, you may be wondering how much you should contribute to a Roth IRA. Ideally, you’ll want to max out your contributions if you can so you can take advantage of all the tax advantages. However, your contributions will depend on your income and retirement goals.

Money Help Center has free and unbiased calculators to help you decide how much you need to save for retirement, so you have enough. These calculators can help you plan, so you can enjoy your after-work life.