We’ve been asked this question many times over the years and one would think it would be a pretty straight forward response—Yes or No. Like all great questions, before it can be sufficiently answered, you will need to begin by asking the right questions. Answering these questions, will help determine if converting a Traditional IRA to a Roth IRA would make sense. Each scenario is different and what works in one case may be completely inappropriate for another.
Let’s look at these questions and a couple of scenarios:
- Will I need the income distributions from my retirement account?
- Who are my beneficiaries?
- Will I, or my beneficiaries, be subject to higher or lower income taxes in the future?
- Do I have cash or investable assets outside my IRA to pay the taxes due upon conversion?
- Do I have charitable inclinations?
- Do I have a 5+ year investment time horizon on my IRA monies?