FORBES FINANCIAL ADVISOR GROUP 

Advisors with D.A. Davidson & Co.

Printed from: www.forbesfinancialadvisors.com

Roth IRA Conversion

Should You Convert Your Traditional IRA to a Roth IRA?

One issue to consider is that if you convert your traditional IRA to a Roth IRA, you will owe current federal income tax on the amount you convert.

When Congress created the Roth IRA, millions of Americans who already had traditional IRAs faced a new decision: “Should I convert to a Roth IRA?” Traditional IRAs feature deductible contributions, and withdrawals are taxed as income. Roth IRA contributions, on the other hand, are not tax deductible, although qualified withdrawals of both contributions and earnings from a Roth IRA are free of federal income tax. This calculator is designed to help you determine whether you should consider converting to a Roth IRA.

 

The results below, and on the following page, show the projected value of a traditional IRA vs. a Roth IRA, based on your estimates on the input page as well as the taxes that would be owed in each case. On the “Future value of assets used to pay taxes upon conversion less taxes (of earnings only)” line, it is assumed that this money would be invested separately in a taxable account. Based on this estimate, which type of IRA would be most beneficial to you?

Skip Table Information
Your Results
Description Amount
Taxes that will be owed when withdrawals begin from your traditional IRA: $0
Taxes that will be owed upon conversion of your traditional IRA to a Roth IRA: $0
Current IRA balance: $0
Projected IRA balance (traditional and Roth): $0
Taxes upon withdrawal — traditional IRA: $0
Taxes upon withdrawal — Roth IRA: $0
After-tax value — traditional IRA: $0
After-tax value — Roth IRA: $0
Future value of assets used to pay taxes upon conversion less taxes (of earnings only) on one-time distribution — traditional IRA: $0
Total after-tax amount — traditional IRA + Net Future Value of assets used to pay taxes upon conversion: $0
Total after-tax amount — Roth IRA: $0

Based on the information you entered, the graph below illustrates the value of the two types of accounts once you reach retirement age. Note that this illustration assumes that upon retirement you would begin withdrawing money from both accounts. However, one other feature of the Roth IRA you should be aware of is that you don’t have to begin taking withdrawals from the account until you want to, whereas with a traditional IRA, you must begin taking minimum withdrawals from the account by April 1 of the year after the year in which you reach age 72 or you will be subject to tax penalties.

Estimated Value of a Roth IRA vs. a Traditional IRA

The information provided is not specific investment advice, a guarantee of performance, or a recommendation. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk. These calculations assume that all deposits made to your traditional IRA were deductible, and that withdrawals were taxed at the after-retirement tax rate you selected. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years and the distribution must take place after age 59½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime limit). To the extent that they exceed total contributions, non-qualified distributions are subject to a 10 percent federal tax penalty and are includible in gross income. Withdrawals from a traditional IRA before age 59½ may be subject to a 10 percent federal income tax penalty, and income taxes will be due. For advice concerning your specific situation, consult a tax professional.