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Now Is the Time to Convert Your Traditional IRA to a Roth

THE IMPACT OF THE pandemic along with low tax rates makes 2021 an opportune time to convert a traditional individual retirement account into a Roth IRA. But a Roth IRA conversion may not be the right financial move for everyone.

A Roth IRA conversion makes sense when:

  • Taxes are low.

  • Your income is reduced.

  • You have the money to pay the taxes that become due.

  • You don't want to leave heirs a big tax bill.

With a traditional IRA, you don't pay taxes on the money you deposit, but withdrawals are taxed as ordinary income. With a Roth, you deposit money on which you've already paid taxes, so the money you withdraw in retirement is not taxable. A Roth IRA conversion means you pay tax on your savings in the year you move your money from the traditional retirement account to the Roth in order to set up tax-free income later in life. Your Roth distributions will eventually be a tax-free source of retirement income. If you convert to a Roth IRA in a year when you pay an unusually low tax rate, you can avoid getting hit with higher taxes when you take distributions in retirement.

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