subject: What To Consider When Converting Your Ira [print this page] If you're eligible to convert your traditional IRA to a Roth IRA, you might want to undo the conversion in the future if the value of your investments drops. If your taxable retirement income drops, or you can't cover the taxes for the conversion to a Roth IRA, you may also want to re-do the conversion. While you can do so before October 15 of the year after you've converted your IRA, it may be better if you wait until you convert compared to undergoing re-characterization of your IRA. While there are no hard and fast rules to follow when converting your IRA, there are some advantages and disadvantages you need to be aware of, first:
Future taxes can influence your decision. Although this may be difficult to forecast, think about the changes your tax amounts will undergo. If you expect higher taxes eventually, conversion to a Roth account may be beneficial.
Think about the years you have left before you retire. If you still have a long way to go before retirement, your converted Roth funds have more time to grow. Tax savings with your Roth IRA will also be higher.
Are you financially capable of paying the taxes that come with the conversion? If you're going to use funds from your traditional IRA to cover the costs, you'll have less of an investment that can increase in value, tax-free - in this case, a conversion might not be worth the loss of investment growth.
Converting from a conventional IRA to a Roth IRA can be highly beneficial to those eligible for it, especially if the conversion is accomplished this year. You can finalize your decision with the help of an online conversion tool, such as Charles Schwab's Roth conversion calculator. You can also consult with your tax advisor to approximate what your taxes will be in the future, and your financial planner as to the benefits of a Roth conversion.
