Today we’re going to talk about an important decision many retirement savers grapple with – Should you do a Roth conversion?
But before we dive into it, let’s break down what a Roth conversion is. A Roth conversion refers to the process of moving your retirement savings from a traditional IRA into a Roth IRA. This move has tax implications, which is why it’s a decision that should be carefully considered.
In a traditional IRA, your contributions are typically tax-deductible. This means that you don’t pay taxes on the money you contribute to the account in the year you make the contribution. However, when you start taking money out in retirement, those withdrawals are taxed as regular income.
Conversely, in a Roth IRA, contributions are made with post tax dollars – meaning you’ve already paid taxes on the money you’re putting into the account. The key benefit here is that the qualified withdrawals, that is, the money you take out in retirement, are tax-free.
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