Like any retirement decision, a Roth conversion can be a major decision. There are several factors to take into account, such as your current income tax rate, expected future income tax rate, as well as the likely rate of return on investments to name a few. 


A Roth IRA conversion can make perfect sense for some. Comparably, sometimes it can make no sense at all. 



First Off, What Is A Roth Conversion?


A Roth conversion allows you to change an existing retirement plan (a 401k or traditional IRA) into a Roth IRA. You take money that is presently treated as tax-deferred and you convert it to an account that will allow it to grow tax-free. To make this conversion, you have to pay taxes on the amount that you plan to convert. 


Are You Near Retirement - and in Need of IRA Income?


It’s not wise to convert to a Roth if you need your IRA income or are approaching retirement. You have to pay taxes on your funds, which means it costs money to convert. If you are taking retirement income, you can increase the timeline of years that it takes for the money you pay upfront to be justified by the tax savings. 


Can You Afford the Taxes?


When you convert to a Roth IRA, you must pay taxes on your existing IRA. The money needed should not come out of your retirement savings because that may hurt you in the long run. An important tip to note is that if you cannot afford the taxes that you will have to pay, it’s not smart to convert. 


Do You Want to Pay the Taxes?


If your tax rate is going to be higher in your retirement than it currently is, you’re likely to not want to pay the taxes. This is a good indication that a conversion may not be the best move for you.


What Makes it Smart to Make a Roth Conversion?


The greater the expected rate of return on the investments that you have, the more likely a Roth conversion would be beneficial. The more time you have between now and retirement, the better the conversion will appear for your situation. 


Our advisors can help you determine if you should make a Roth conversion. Call us a 870-972-4304 to talk about your situation. 


Ready to achieve true financial peace of mind?

If you are ready to achieve financial peace of mind, it's time to schedule a coaching session with an experienced wealth management advisor. Contact Quraishi Law Firm and Wealth Management at 870-275-4304 if you have additional questions or would like to learn more about our wealth coaching process.

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Carrie Russom Quraishi, JD, CAPP
Carrie provides personalized wealth management, tax and estate planning services to clients in AR, TX & TN.