Teders Bookkeeping & Tax Service, Inc.

Converting a Traditional IRA to a Roth IRA

Should you convert your traditional IRA to a Roth IRA? What are the tax ramifications? The Roth IRA does appeal to many people, so it may make sense to convert your traditional IRA to a Roth IRA.

In order to convert your traditional IRA to a Roth IRA, your adjusted gross income must be below $100,000. The conversion is taxable on the entire amount of the deductible contributions and on the earnings.

There are certain situations when converting to a Roth IRA is not suitable. For instance, if you are retiring soon and you will enter a lower tax bracket than the one you are in now, it may be better to keep the traditional IRA. If your future tax bracket is going to be higher, it may be better to move to the Roth IRA.

Basically, if you are a long way from retirement and you have money from your current income to pay the taxes, then you should go ahead and transfer. However, if you do not have money from your current income or if you have to use the money from your IRA savings to pay the taxes, then you should probably keep the traditional IRA.

For additional guidance, we recommend contacting our office. We can help you decide whether to keep your current traditional IRA, convert to a Roth IRA, or keep your traditional IRA and begin contributing to a Roth IRA.

Do not use this article as a substitute for professional advice. The information in this article is intended to be only a general overview of the topic and may omit details that could be critical to your specific situation. Accordingly, this article should not be construed as rendering legal, tax, or other professional services. Please contact our office for more information on this topic and how it could affect your specific tax or financial situation.

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