- This strategy creates taxable income in the present to receive the future tax-free growth benefits of a Roth IRA.
- There is no limited on the amount you can convert per year or lifetime.
Retirement accounts that can be converted to a Roth IRA include:
- Traditional IRA
- SEP IRA
- SIMPLE IRA
- Employer retirement plan (401k, 403b, 457b)
- a Roth IRA is not subject to the Requirement Minimum Distribution rules.
- Converted amount and earnings grow tax-free.
- You can withdraw contributions at any time, for any reason, tax-free.
- Those normally ineligible for a Roth IRA can execute a conversion to create a Roth IRA. Back-Door Roth IRA Contributions are an example of this.
- Can leave a tax-free financial legacy to your heirs.
You pay tax on the conversion when executed – and it could be substantial depending on your tax brackets.
- You may not benefit if your tax rate is lower in the future.
- The 5-year withdrawal rule may apply to earnings, even if you’re already age 59 1/2.
- Figuring taxes can be complicated if you have other Traditional, SEP, or SIMPLE IRAs you’re not converting.
- Required Minimum Distributions cannot be satisfied by a Roth IRA conversion.