Should I Consider a Roth Conversion?

Roth IRAs can be a powerful financial tool, since the funds in a Roth IRA grow tax free and they are not subject to Required Minimum Distributions (RMDs) like traditional IRAs.  But doing a conversion may not be right for everyone.  Below are three of the questions to ask yourself when you are deciding whether a Roth conversion makes sense for your situation:

• Do you think your income later in retirement will be greater than it is now? 

• If your traditional IRA or 401k has increased dramatically in value, you may find yourself in a situation where your income actually increases in retirement once you begin taking RMDs.  Converting some of your funds to a Roth IRA will reduce your RMDs later on.

• Do you expect your heirs to be in a higher tax bracket than you are in now?

• It is widely thought that a Roth IRA is the best type of investment to inherit, particularly if your heirs are in a high tax bracket.

• Do you have the funds to pay the tax on the conversion?

• The amount of your conversion will be taxable income, so you will want to have the funds available to pay the tax on the conversion.

These are just three of the questions you will want to consider before doing a Roth conversion.  Don’t hesitate to reach out if you would like a comprehensive review of your specific situation.