Taxes are perhaps the most important issue in determining whether a Roth conversion will make sense. Here are four other things to consider before you make a decision.
Here are 5 things to consider in determining whether a Roth conversion makes sense for you.
Your age matters on a couple of levels. If you are in or near retirement, the five-year rule on Roth conversions can come into play.One of the criteria used to determine if a withdrawal from a Roth IRA is a qualified distribution that is not subject to taxes or a penalty is whether or not the account owner has satisfied the five-year rule. Each Roth conversion has its own so-called five-year clock.
One of the biggest advantages of a Roth IRA is the fact that these accounts are not subject to required minimum distributions as with a traditional IRA or 401. While a Roth 401 is subject to RMDs, this can be avoided by rolling the money over to a Roth IRA once you leave that employer.RMDs begin at age 72 and can deplete a traditional IRA or 401. RMDs are mandatory based on an IRS schedule and these distributions are taxed as ordinary income each year.
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