Roth IRAs are well-loved because they offer all of the benefits of tax-free accumulation with tax-free distributions once you are retired. Many people choose to convert traditional IRA accounts to Roth IRAs and pay tax on the converted amount. However, before you make the change, you should think carefully about your choice. As a result of tax reform, your conversion cannot be undone.

Changes You Should Know

As we said above, converting your traditional IRA to a Roth IRA cannot be undone. The best time to make your conversion is during a year where your income will be lower than usual, or the value of your traditional IRA has gone down. If you don’t want to do your conversion all at once, you can convert portions over time to spread out your tax liability and remain in a lower tax bracket. If in the past you made non-deductible contributions to a traditional IRA, those can be converted tax-free, but must be converted ratably with the other funds in the traditional IRA.

Questions to Consider

While everyone has a unique financial situation and should discuss conversion with a trusted advisor like those at Miles Tax Advisory, here are some of the questions you should consider when mulling over your conversion:

  • Will you have enough time before retirement to recoup the conversion tax dollars in the form of tax-free accumulation? Think critically about your projected retirement date.
  • Will your income be low enough (or your deductions high enough) to convert your traditional IRA tax-free or with minimal taxes?
  • Will you be in a lower or higher tax bracket in the future?
  • Where will you get the money to pay for the conversion tax? If you have to use money from the IRA you are converting, and you are under 59 ½, you will have to also pay the 10% early distribution penalty on the money and have it taxed. It’s always best to use separate funds instead.

Consult Your Advisor for Conversion Advice

If you are thinking about converting your traditional IRA into a Roth IRA, you should contact Miles Tax Advisory today. We can work you through all of your options and help you to determine the best timing for your move. You can trust our expertise and years of experience to help you maximize your wealth, and we’ll always give you the individual attention you need.  We are always here to assist you!