Roth IRA Conversions

A Roth conversion is a strategy that allows you to pay income taxes on some or all of your retirement assets today, rather than when you withdraw those assets in retirement. It's done by converting a Traditional IRA to a Roth IRA, and, with few exceptions, anyone is eligible to convert regardless of age or income.

What are the benefits?

  • Unlike a Traditional IRA, you're generally not taxed when you withdraw contributions and earnings from your Roth IRA – as long as your Roth IRA is at least five years old and you're age 59 ½ years or older. If not, the earnings portion of the withdrawal may be subject to taxes and a 10% penalty, unless the exception applies.
  • You may pay lower taxes if you're current tax rate is lower than your expected tax rate in retirement.
  • Diversifying your retirement assets by tax treatment may give you greater flexibility to manage your taxable income in retirement, so you don't have to worry as much about future income tax rates.
  • There are no required minimum distributions (RMDs) while the original account holder is alive, allowing your assets to grow tax deferred over a longer period.
  • You may be able to create a tax-free legacy for your heirs.

Think about taxes

If you do decide to convert to a Roth, the taxes you'll owe with respect to the conversion will generally be based on the value of the investments in your IRA at the time.  Whatever amount you convert may be included as part of your taxable income in that year.

And remember: converting a Traditional IRA to a Roth IRA is not an all-or-nothing decision – converting a portion of your Traditional IRA is also a strategy to consider.

What else to consider

Keep your end goal in mind when deciding to convert to a Roth. Consider these factors:

  • Will you be able to afford the taxes due?
  • What is your tax rate now, and what will it be in the future?
  • When do you need to make withdrawals?

How we can help

You, your Edward Jones financial advisor and a tax professional can help determine the strategy that best suits your particular situation.

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