Converting Your IRA to a Roth IRA

Roth IRAs offer certain advantages:

  • They grow tax-free, which can help you save more for your retirement.
  • There are no mandatory withdrawals for the original owner.
  • They can pass to your heirs tax-free.

You can convert a traditional IRA to a Roth IRA. If you anticipate your income to drop significantly in a certain year (and increase in following years), it’s advantageous to make the conversion during the lower tax bracket year, since you pay tax on the full amount in year of conversion. Converted assets must remain in the Roth IRA for at least five years to avoid penalties and taxes.

Distributions from a Roth IRA are tax-free and penalty-free provided that the five-year requirement is met, along with at least one of these conditions:

  • You are at least 59½ years old
  • You have become disabled
  • You make a qualified first-time home purchase
  • You pass away

To find out whether converting your IRA to a Roth IRA makes sense for your financial future, call Maddox, Thomson & Associates. We’re always ready to offer you advice.

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