Selecting the right retirement account for you is key to securing a healthy financial future. If you currently fund a traditional IRA, you should consider converting to a Roth IRA. 

Why Convert to a Roth IRA

First, a Roth IRA allows you to accumulate tax-free wealth for your retirement. Traditional IRAs offer tax-deferred growth, which means you'll have to pay taxes when you're ready to withdraw from your account. But with a Roth IRA, you only contribute after-tax dollars, which means you won't have to pay any taxes upon withdrawal. Under the right circumstances, you can also use your Roth IRA to give your heirs tax-free income in the future.

Why are some people considering converting their traditional IRA to a Roth IRA? For one, it's expected that income tax rates will rise in the coming years, so paying taxes now upon contribution and then letting your money grow tax-free in a Roth IRA could be advantageous. Many also expect to see new restrictions on Roth conversions and asset accumulations in the next few years. 

Depending on your situation and tax strategy, now could be a good time to see if an IRA conversion is right for you. Remember that you can convert all or just part of your traditional IRA to a Roth IRA by paying a one-time tax on the conversion.

Who 

Converting a traditional IRA to a Roth IRA can be beneficial for many different profiles. If you identify as one of the following, now might be the time for you to consider making the conversion:

• You are young: You have more time to recoup the conversion tax and more time to accumulate tax-free wealth.
• You are older with other sources of retirement income: You can convert your traditional IRA to a Roth IRA to prepare to provide your heirs with tax-free income.
• You have assets in your IRA that you expect to significantly appreciate soon: By transferring your assets now to a Roth IRA, you could benefit by paying the conversion tax now while your assets have a lower value. This also means you can avoid paying a high tax rate upon withdrawal.
• You are in a low federal or state income bracket but expect to move into a higher tax bracket soon: Making the move now from an IRA to a Roth IRA will allow you to pay the conversion tax while you’re still in a lower tax bracket.

If you have questions about converting your traditional IRA to a Roth IRA, or general questions about your retirement strategy, please contact your Perlson LLP professional at (516) 541-0022.