Traditional to Roth IRA: Should you convert?
Traditional to Roth IRA: Should you convert?
Traditional IRAs — which can enable you to make tax-deductible contributions and defer taxes on earnings — are popular for a reason. So why would you convert yours to a Roth IRA?
You can’t deduct Roth IRA contributions, but withdrawals, including investment earnings, are tax-free if you’re at least 59½ and have held the account for at least five years. You can withdraw contributions free of tax and penalties at any time. Also, Roth earnings are exempt from the new 3.8% Medicare tax on net investment income — although Roth IRA distributions could trigger the tax.
Roth IRAs offer estate planning advantages, too. You aren’t required to take minimum distributions (which apply to traditional IRAs), so you can leave the entire balance to grow tax-free. While beneficiaries are required to take minimum distributions from inherited Roth IRAs, the distributions are income-tax-free.
Finally, although Roth IRA contributions are limited based on income, anyone is free to convert a traditional IRA to a Roth. But you’ll have to pay income tax on the converted amount and you might trigger the Medicare tax.
