When To Convert Your
Traditional IRA to a Roth IRA
By Lois Center-Shabazz
I am often asked the question, "Should I invest in a regular IRA or a Roth
IRA"? The next most frequent question I get is, "Should I convert to a Roth
IRA?" In both situations, it depends on many factors. Here I will address a few
of the situations that will help you decide when and if you should convert to a
Getting up in age, near or about retirement age you may consider converting to a
Roth IRA, mainly because you can accumulate more money with a Roth IRA than a
This conversion is for middle to high-middle income earners, for if you have a
modified adjusted gross income of more than $100,000 or you are married filing
separate you don't qualify for a Roth IRA at all. So don't even consider it.
You can save money in a traditional IRA with both tax deductible and tax free
savings. But, you have to pay taxes on the money when you take it out. When you
take money out of a Roth IRA you don't have to pay taxes on it. But, it only
If you plan to convert to a Roth IRA make sure you take the money out of your
IRA little by little. You have to pay taxes when you take money out, using this
strategy you can keep the tax bill down.
You can also convert the same investment you already have from a traditional IRA
to a Roth IRA. There is no need to purchase a new investment.
If you have a low to middle income, you will not have a large tax bill, so you
can withdraw directly from your traditional IRA when you are 59 1/2 or when you
decide to retire after that. You do not need to convert to a Roth IRA. Make sure
the withdrawals are small enough to keep your tax bill within reason.
Be careful who you listen to also. Some advisors are not honest and they will
steer you into a high cost annuity. Annuities have many hidden cost and it
usually takes years (upwards of 20-40), before the investment makes a profit.
Many older people are being steered into high cost annuities even though they
were meant to be retirement instruments for those who have several years to
retire, not those who are in or near retirement.
Before converting, you have to do some arithmetic, and if the conversion is not
done correctly, and you are under 59 1/2 you may have to pay a penalty for early
withdrawal of your traditional IRA.
Check with your tax accountant before you make a move if you don't understand
Lois Center-Shabazz is the author of the award-winning, best- selling book,
"Let's Get Financial Savvy! From Debt-Free to Investing With Ease" and the
editor-in-chief of the personal finance website,