A Quick Look at Roth IRA Conversions

One element of the Roth IRA that may spark questions from taxpayers is the issue of converting an existing deductible Individual Retirement Account (IRA) into a Roth IRA. Perhaps one of the more important factors in your decision on whether or not to convert to a Roth IRA is how you will choose to pay income taxes at the time of conversion.

If you choose to pay taxes from your IRA principal, converting may not provide the best long-term result. In fact, by paying income taxes from out-of-pocket sources, you keep your IRA balance intact, thus allowing the converted Roth IRA to fully take advantage of tax-free growth over time. 

If you’re financially capable of paying the income taxes “out of pocket,” you should consider a Roth conversion. However, before you proceed, it’s important to consult with your financial professional to assist you in a careful review of your options. That way, you can better determine if a Roth conversion is in your best short- and long-term interest.