Anticipating Your Needs, Exceeding Your Expectations

  1. Home
  2.  • 
  3. Estate Planning
  4.  • 
  5. Estate Planning Learning Center
  6.  • Should You Convert To A Roth IRA

Should You Convert To A Roth IRA

Previously, if your adjusted gross income was $100,000 or more, you did not qualify to convert your tax-deferred savings to a Roth IRA. But this income restriction has been eliminated, so everyone is now eligible to convert to a Roth IRA. If you are considering this change to your retirement portfolio, contact Sjoberg & Tebelius, P.A., to learn the legal and practical implications of this decision. Call us at 651-315-8856 or 888-892-7044 to make an appointment. Serving Minnesota and western Wisconsin.

You can rollover amounts from your traditional IRA and from eligible retirement plans, which include qualified pension, profit-sharing or stock bonus plans such as 401(k)s; annuity plans and tax-sheltered annuity plans; and deferred compensation plans of a state or local government. You do not have to roll these into a traditional IRA first.

Of course, you will have to pay income taxes on the amount you convert; it will be included in that year’s income. But when you consider the benefits, it may be worth it.

Benefits Of A Roth IRA

  • With a Roth IRA there are no required minimum distributions during your lifetime. A traditional IRA requires you to start taking your money out at age 70 ½, whether you need the money or not.
  • Unlike a traditional IRA, you can continue to make contributions to a Roth IRA after you have reached age 70 ½. (see restrictions below)
  • As a general rule, after five years or age 59 ½, whichever is later, all distributions to you and your beneficiaries will be income tax-free. So your money doesn’t grow tax-deferred … it grows tax-free.
  • Withdrawals before age 59 ½ are considered contributions first, then earnings. So there is no income tax or penalty until all contributions have been withdrawn from the account.
  • Money can be withdrawn at any time without penalty for college expenses, and up to $10,000 can be withdrawn tax-free at any time to buy or rebuild a home.
  • You can stretch out a Roth IRA just like a traditional IRA. After you die, distributions will be paid over the life expectancy of your beneficiary. Your spouse can do a rollover and name a new, younger beneficiary with a longer life expectancy and get the maximum stretch out. You can also use a Standalone Retirement Trust (SRT) with a Roth IRA to obtain long-term creditor protection and benefit for your family.

Conversion Considerations

This is an excellent opportunity, but make sure you evaluate your situation and run the numbers before you make a decision. Consider how much you would pay in income taxes. Are you currently in a low tax bracket? Will your retirement tax bracket be the same or higher than it is now? Can you pay the tax without dipping into your tax-deferred savings? Did you make any nondeductible contributions that won’t be taxed when you convert? Do you want to eliminate your required annual distribution? Should you convert some or all of your tax-deferred savings?

Seek Expert Advice

This is an appropriate time to get advice from a qualified professional who has experience in this area. There may be a substantial amount of money involved, and while you certainly want to take advantage of this opportunity if it applies to you, you also want to make sure you act wisely.