IRAs vs Roth IRAs

To Roth or not to Roth? That is the question!

While the answer is not always simple, there is one main question that I ask when helping clients determine whether to convert their traditional IRA plans to Roth IRAs:

Do you anticipate having a LOWER or HIGHER tax rate when you retire?

If you feel your tax rate might be lower, then, based on my experience, it usually makes sense to keep your traditional IRA and pay taxes on any withdrawals at retirement, when you will have less taxes to pay.

If you feel your tax rate might be higher or the same, sometimes it makes sense to pay your taxes and convert to a Roth IRA now, so that your earnings can be withdrawn tax-free later on*.

But life is never so simple, is it? Bring in the complications of social security and pensions that might also be taxed due to IRA withdrawals, increasing tax rates by our government, RMDs (required minimum distributions), and the need to write a big check to the IRS if you convert, and the answer doesn’t always look so easy. Still, it doesn’t take much to do an analysis, and sometimes converting to a Roth IRA now can potentially save you thousands and thousands of dollars in the future.

To convert or not to convert? Contact me and let’s answer that question, today!

* A Roth IRA distribution is qualified if you’ve had the account for at least five years and/or the distribution is made after you’ve reached age 59½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses. Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings. Please discuss tax issues with a qualified tax advisor.