Is it Beneficial to Convert Traditional IRAs to Roth IRAs?
The Internal Revenue Service allows people to convert money from traditional individual retirement accounts (IRAs) to Roth IRAs. As of 2010, the IRS no longer imposes income limits on who can make the conversion.
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Benefits
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Converting to a Roth IRA from a traditional IRA allows you to take tax-free qualified distributions from the Roth IRA. In addition, Roth IRA accounts do not require minimum distributions starting at age 70 1/2.
Time Frame
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You must leave money converted from a traditional IRA in the Roth IRA for five tax years before you can take qualified withdrawals, even if you reach age 59 1/2 earlier.
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Considerations
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When you convert, you must include the amount of the conversion as taxable income, which may significantly increase your tax liability in the year of the conversion. However, if you expect to be in a higher income tax bracket when you take the withdrawals from the IRA, you are better off converting.
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