2010 is the year of the mighty Roth IRA conversion and many boomers are wondering if it’s the right thing to do. The sound of tax-free money is a sweet lullaby, but is it worth the up front tax expense?
Everybody’s situation is different and it’s hard to say if it’s right for you. If you are on the bubble, here’s a comprehensive list of Roth IRA conversion calculators that you can plug in some numbers and see if it makes sense.
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Reasons to do a Roth IRA Conversion
There are several reasons that a Roth IRA conversion makes complete sense. Here are a few:
- A larger sum to bequeath to heirs. Since required minimum distributions (RMDs) do not apply for Roth IRAs as they do for traditional IRAs, investors who do not need the money may leave it invested as long as they choose, which may result in a larger balance for heirs. After an account owner’s death, beneficiaries are required to take distributions, although different rules apply for spouses as opposed to children and other non-spousal beneficiaries.
- Tax-free withdrawals on qualified distributions. Withdrawals from a Roth IRA are tax-free for those who have had the money invested for five years or more and have reached the age of 59½ or have attained another qualifying event.
Which Is Right for You?
If you have a traditional IRA and are considering converting to a Roth IRA, here are a few factors to consider:
- A conversion may be more attractive the further you are from retirement. The longer your earnings can grow, the more time you have to compensate for the associated tax bill.
- Your current and future tax brackets will affect which IRA is best for you. If you expect to be in a lower tax bracket during retirement, sticking with a traditional IRA could be the best option because your RMDs during retirement will be taxed at a correspondingly lower rate than amounts converted today. On the other hand, if you anticipate being in a higher tax bracket, the ability to take tax-free distributions from a Roth IRA could be an attractive benefit.
There is no easy answer to the question: “Should I convert my traditional IRA to a Roth IRA?” As with any major financial consideration, careful consultation with a professional is a good idea before you make your choice.
List of Roth IRA Conversion Calculators
- Charles Schwab Conversion Calculator
- Calcx Conversion Calculator
- MSN Money Conversion Calculator
- CalcTools Conversion Calculator
- Vanguard Conversion Calculator
- TIAA-Cref Conversion Calculator
- Bankrate Conversion Calculator
- Bank of America Conversion Calculator
Disclaimer: Roth IRA conversion calculators are not created equal.
A calculator — whether found on the web or nestled in a more sophisticated financial planning software package — isn’t a bad jumping-off point when trying to assess whether it makes sense for someone to convert his or her retirement assets to a Roth individual retirement account. But it is hardly the final word on the matter. Be sure to meet with a Certified Financial Planner or tax advisor before implementing the Roth IRA conversion.
Need to Open an IRA? You can or Zecco account. Zecco is currently offering $0 stock trades. Don’t delay – fully fund your IRA today!