When Should You Consider Converting to a Roth IRA

Everybody might have a similar idea of what they want to do post retirement, but not everyone plans the same way for it. Retirement planning is a crucial aspect and one may have several approaches. Not everyone’s retirement portfolio looks the same as some prefer making contributions to their 401K, while some will consider different kinds of investments and policies to secure their retired life. But there is another way to approach it.


You can consider converting to a Roth IRA. It has its own set of benefits and advantages that you should explore. Following are five situations when you could consider converting to a Roth IRA.

When you are in a Low Tax Bracket

When you are in a low tax bracket or have recently retired, you can decide to delay your Social Security benefits. Your income will be interest and dividends etc. During a period of being in a lower tax bracket you may convert all or acertain amount of your Traditional IRA to a Roth IRA.The gains in the Roth account will grow tax-deferred then change to tax FREE when the Roth Rules are met (Roth account is 5 years old and you reach the age of 59 1/2). Tax-free means tax-free to you and your heirs.

When You Want to Leave the Money for Your Kids

If you have a significant amount of savings and feel that you won’t need the entire amount for your retirement, then it might be a good idea to consider Roth conversion. You can even gift it to your kids or grandkids. It might even be better if they are in a higher tax bracket as compared to you. This way, you can pay the taxes now and when the kids/grandkids inherit the Roth account, it is completely tax-free. It will continue to grow tax-free for the rest of their lives.

When your Investments are Temporarily Low

When the investments get temporarily low, like in the occasion of a recession, you can take advantage of such a temporary decline and recover the benefits later. For example, if you start your IRA at $100,000, which dropped to $50,000 due to some temporary decline, you can convert it into a Roth IRA at that point and pay income tax only on $50,000. Now, a few years later this converted Roth IRA will again be worth $100,000 but it will be completely tax-free. This way, you will have avoided paying income taxes on $50,000.

When you Feel that the Tax Rates will Go Up

While there is no way accurate way of estimating how and when the tax rates will fluctuate or go up, you can convert to Roth if you have any indication of the tax rates going up. If you think that the federal tax rates may vary based on who’s elected, or if there is some turbulence in the economy or any change is visible in the market that has the potential to affect the tax rates, then converting to a Roth IRA and paying taxes now will be more sensible rather than doing the same at higher rates later.

When you want to Lower your Estate’s Value for Tax Purposes

In most cases, the majority of estates are exempted from estate tax. However, if the estate is large enough, it would be ideal to convert to a Roth IRA during your lifetime. It’ll help in reducing the value of the estate, as you will be paying taxes now instead of later.

If you find yourself in any of these situations, then convert into Roth IRA. You won’t regret the decision as numerous benefits can be enjoyed later.

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