Roth IRA Conversion: Is It Right For You?

The Roth Individual Retirement Arrangement (IRA) allows non-deductible contributions and tax-free accumulation and withdrawals.  Beginning in tax year 2010, you may regardless of your income, convert a (tax-deferred) Traditional IRA to a Roth IRA. However, should you?  Roth IRA conversions can be complicated but here are three simple rules of thumb:

  1. If you expect to pay a higher tax rate in the future on traditional IRA withdrawals, then you should consider doing a Roth conversion now at the current lower tax rate.
  2. For maximum benefit, you should pay for the conversion taxes with non-IRA money.
  3. A person who has no IRAs, and has too much income to do a direct Roth contribution should consider making a non-deductible Traditional IRA contribution and then doing a conversion.

Call Successful Portfolios at (800) 454-6419 for help with your IRA.  For spreadsheet jockeys who like to do their own financial modeling, download Successful Portfolios Roth Conversion Analyzer here:  (Excel File).

About the Author:

Parker Evans, CFA, CFP, CMT is President of Successful Portfolios LLC, an SEC Registered Investment Advisor Firm based in Clearwater, FL. Parker helps individuals, families, and organizations plan and manage custom investment portfolios at leading brokerages including Charles Schwab, TD Ameritrade, and Interactive Brokers.