Roth IRA Conversions
Benefits of a Roth IRA
- Withdrawals of earnings are free from federal income tax, provided the Roth IRA has been in existence for five years and you are at least 59½.
- Contributions can be withdrawn anytime without federal income taxes or penalties.
- RMDs (Required Minimum Distribution) are not required.
- Distributions for your beneficiaries are tax-free.
Effective January 1, 2010, you can convert a Traditional IRA to a Roth IRA regardless of your income level. Prior to 2010, individuals or couples with modified adjusted gross income in excess of $100,000 were ineligible to convert retirement savings to a Roth IRA.
Cost of Converting
When you convert to a Roth IRA, you must pay income tax on the otherwise taxable amount of the transfer. To maximize the benefits of conversion, the money to pay those taxes should come from a source outside the Traditional IRA you are converting. You may convert your Traditional IRA over several years to manage the tax consequences.