Personal Tax News

Should You Perform Roth IRA Conversion AFTER Retirement?

Fairmark brought a good case about when to convert your IRA to Roth IRA for several tax benefits even after you retire. Among them, you can reap extra tax-advantaged growth provided by Roth IRA, avoid required distributions in IRA and potentially save on tax. Still, one needs to carefully evaluate his tax brackets and time the conversion well to take the full advantage.

Many people believe it doesn't make sense to convert a traditional IRA to a Roth IRA late in life. In reality, many retirees have a longer life expectancy than you might expect. What's more, a partial or complete conversion can provide significant tax savings even if the owner of the IRA has only a very short life expectancy. The benefits aren't present in all cases, so careful analysis is required to determine whether a rollover makes sense, how much to roll over, and when. As explained below, in most cases the rollover will make sense if all of the following are true:

- You'll take only qualified distributions from your Roth IRA, so that all your withdrawals are free from taxes and penalties.
- You'll be able to pay taxes on the rollover from another source. In other words, you won't use money from the IRA to pay taxes. (Sometimes you can benefit even if this is not true.)
- Most importantly, you won't pay tax on the rollover at a significantly higher rate than the rate that would apply if you left the money in your regular IRA, taking it out when you need it later in life. To avoid this problem you may need to do only a partial rollover.