Roth Conversions


Factors To Consider When Deciding Whether to Convert an IRA to a Roth IRA Account

Whether to convert an IRA to a Roth IRA involves many factors. In many cases, it is difficult to know with certainty what is the best course of action. The following are some factors that may aid in this decision.

Consider Converting

You should consider converting to a Roth IRA if the following apply to your situation:

  • You expect your tax rate to be higher in retirement
  • Low income Year: If you have a relatively low income, it could make good sense to convert some or all of your IRA balance to Roth. This could come about if you have variable income (such as commission income, farm income or sales) and you have a year where your expected taxable income will be lower by average than other years. It is key to have outside (non-IRA) funds available for paying the additional tax.
  • You do not think you will need the money for living expenses
  • Your investment horizon is long enough to benefit from the tax-free growth of a Roth IRA
  • You can afford to pay taxes on the conversion using separate funds.
  • Estate Planning: There may be various reasons to convert for estate planning. For example, if you don’t expect to use the IRA funds for your own purposes in retirement and you’d like to pass along the money to your spouse or heirs tax-free, conversion to Roth will eliminate the income tax burden for such beneficiaries.

Consider Not Converting

You should probably not convert your IRA in the following situations:

  • You expect a lower income tax rate at retirement
  • You will need the funds for living expenses.
  • You lack separate funds to pay taxes.
  • You plan to donate the entire IRA to charity. You may want to donate only a portion, so you could split the IRA into the Roth and give the balance to charity.

Run Projections and Get Professional Guidance

The above are just some of the issues to consider here. In addition, you should meet with a tax attorney or your tax accountant to run various income, cash flow and tax projections to determine with more certainty which option to consider.

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From their offices in Philadelphia, PA, the law firm of Steven J. Fromm & Associates, P.C. provides a full range of estate planning, probate and estate administration, tax, business and corporate legal services to clients throughout eastern Pennsylvania and the Delaware Valley, the Lehigh Valley Area, the Five-County Area, Bucks County, Delaware County, Montgomery County, Chester County, Philadelphia County, Berks County, Lehigh County, Lancaster County, York County, Harrisburg, Norristown, Doylestown, Media, West Chester, Allentown, Lancaster, and Reading.