A Guide About Converting Traditional IRA Savings to a Roth IRA


Triston Martin

Feb 01, 2024

A Roth IRA rollover, which transfers assets from an existing conventional IRA (or some other retirement account) to a Roth IRA, has various advantages. You should consider a Roth conversion if you anticipate that your tax rate will rise. For those who make too much money to contribute to a Roth IRA, the option of using the Roth conversion as an entry point into a tax-free pension income. An overview of the conversion process and factors to take into account before converting traditional IRA savings to a Roth IRA or not to do so is provided below.

The Basics of a Roth IRA

Roth IRA donations are not tax-deductible, unlike contributions to standard IRAs. In return for the absence of upfront tax benefits, Roth profits are normally tax-free upon exit. A Roth IRA is a tax-advantaged retirement account allowing the account holder to pay taxes now to avoid paying later.

To qualify for this tax-free status, a Roth IRA user must wait until they reach the age of 59 1/2. As a general rule, the monies must be invested for at least five years unless there is a compelling reason to do differently. Taxes on profits and a 10% penalty are levied on early money withdrawals from a Roth Individual Retirement Account (IRA).

Traditional IRAs

Contributions to a traditional IRA are either tax-deductible or not. If you want to do so, contributions to a conventional IRA may be deducted from your taxable income in the year you make them. When the money is withdrawn, you'll owe taxes on the interest you've earned and the principal amount you invested.

If you contribute to a non-deductible traditional IRA, you may take a partial deduction or none. You won't have to pay taxes on the gains until you remove them, and the amount of the account that represents your non-deductible basis will be given back to you tax-free.

Converting to a Roth IRA

A "Roth conversion" alters the tax status of the retirement savings fund you've invested in. Traditional IRAs provide tax deferral, whereas Roth IRAs allow post-tax contributions. As a result, converting to a Roth involves reversing the deferral. Previously tax-deductible savings contributions and accrued profits must be paid in full. This shifts the money from pre-tax to post-tax.

Roth IRA Methods of Conversion

A Roth conversion may be accomplished in several ways, based on where you keep your retirement funds:

  • Indirect rollovers allow you to receive a payout from your conventional IRA in the form of a check sent to you within 60 days. After that, you have 60 days to transfer the money to your Roth IRA.
  • If you'd want to move your IRA funds directly through one financial institution to another, a trustee-to-trustee transfer is an option. Request a direct transfer from your conventional IRA provider to your Roth IRA provider.
  • If your conventional IRA and your Roth IRA are both held by the same company, you may request a transfer of funds from one to the other. This is referred to as a straight transfer or a same-trustee transfer.

Should You Convert Now to a Roth IRA?

It's up to you to determine whether or not to convert your traditional IRA to a Roth IRA based on this year's taxes. As a result, moving money from a pre-tax retirement plan to a Roth requires you to pay taxes on the income you get from the transfer. You might have paid taxes on that money if you had deposited it to a Roth IRA at the beginning of the year.

When You Shouldn't Convert

In the following circumstances, converting to a Roth IRA may not be the best financial move:

  • You don't have enough cash to cover the entire amount of tax due on the conversion to a Roth IRA.
  • When you retire, you anticipate being in a lower tax rate than you are now.
  • You may need to use your IRA money in the following five years, and you'll be under 59 1/2 at the time of your withdrawal.

If you plan to be in a lower tax band in retirement, it doesn't make sense to pay more in taxes now than you would otherwise. Paying taxes now is a waste for individuals who may need the money in the next five years. In this situation, you'll be taxed twice—once for the conversion and once for the withdrawal, plus additional penalties that may be incurred.


A regular Individual Retirement Account (IRA) may be converted into a Roth IRA, which can give future tax-free income and benefits for estate planning. However, you will be required to pay taxes on the money at a rate that may be greater than what you would owe in retirement.


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