Are Roth Conversions Worth It? 5 Ways to Know

1. You Expect to Be in a Higher Tax Bracket Later

Converting to a Roth IRA is a good strategy if you believe your income and tax rate will increase. While contributing to a traditional retirement account may lower your tax bill today, it can mean facing more substantial taxes if you’re in a higher tax bracket upon retirement.

With a Roth conversion, you pay taxes on the balance you transfer now but get to withdraw tax-free savings and investment earnings later. This is particularly helpful if you’re a younger professional who may see pay increases, a business owner with growth potential or up-and-down income, or you think you may receive a windfall or inheritance ahead of retirement.

2. You Have Time to Let the Money Grow Tax-Free

The longer your money can grow tax-free with compound interest in a Roth IRA, the more valuable a conversion becomes. That’s because when you convert, you won’t owe any taxes on the funds you eventually withdraw—since you’ve already paid them. If you have many years or decades before retirement or diverse income streams to bolster your income, this is a huge advantage.

An extra benefit? Roth IRAs don’t have required minimum distributions (RMDs), meaning you don’t have to start withdrawing at age 73 like you would with a traditional 401(k), IRA, or 403(b). This gives you more flexibility on how long you can keep your funds in the account and when you withdraw.

3. You Can Pay the Conversion Taxes Without Dipping Into Retirement Funds

An overlooked part of a Roth conversion is how you pay the taxes. You might assume they’ll just come right out of the retirement account you’re transferring—but that’s not always the best choice.

If you have sufficient liquidity, you can use outside funds to pay the taxes when converting a traditional account to a Roth status. This keeps your retirement savings intact, allowing them to stay invested and continue earning interest without interruption.

4. You Want to Leave Tax-Free Money to Heirs

Roth conversions are also a powerful estate and legacy planning tactic. By converting now and paying the taxes yourself, you can pass on tax-free money to your heirs, allowing them to enjoy the full benefit of your saving and investing efforts.

This is a viable move if you don’t see yourself needing to access the money during retirement—for instance, if you have other income sources or retirement accounts with substantial savings.

Legacy planning can get complex. With the help of a fiduciary financial advisor, you can put together a personalized strategy that aligns today’s needs and long-term goals while minimizing the tax burden on the next generation.

5. You’re Nearing Retirement and Want More Flexibility in Income Planning

As you near retirement, how you withdraw your money becomes just as important as how much you save. Roth conversions can be an effective tool for creating tax diversification, letting you control how much tax you pay each year.

If much of your savings are largely in traditional tax-deferred accounts like a 401(k) or IRA, or you’re nearing the time to receive Social Security or take RMDs, converting some of these funds to a Roth IRA can give you a tax-free withdrawal option to draw from. This can help you manage your income and reduce your tax burden in retirement.

Is a Roth Conversion Right for You?

So, is a Roth conversion worth it? That depends on your goals, income, and retirement timeline. While it can be a great strategy—especially if you fit into one of the above categories—it’s not right for everyone. Converting to a Roth requires careful consideration to ensure it aligns with your financial picture and circumstances.

That’s why it’s savvy to work with a qualified financial advisor. A professional can help you understand the pros and cons of a Roth conversion and how it may—or may not—fit into your holistic financial and retirement plans.

The top financial advisors uphold a fiduciary duty, meaning they’re legally obligated to put your best interest first. They’ll also offer transparent fees and hold credentials from reputable organizations. Use our free tool to match with a fiduciary advisor who fits your needs.

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