Ask the Advisor – Retirement Planning

What are the pros and cons of rolling over an IRA to a Roth IRA?

A Roth IRA offers a number of advantages over a traditional IRA:

• There are tax-free withdrawals of earnings if you hold the account for at least five years and are at least age 59 1/2 when you start distributions.
• You can take out contributions tax-free at any time.
• There are no required minimum distributions during the original account holder's lifetime.
• Beneficiaries of a Roth IRA can take tax-free distributions as long as they meet the IRS's timeline.

That said, it may not be advantageous to roll over an IRA to a Roth IRA in the following circumstances:

• if you don't have money available to pay the tax bill on the conversion without taking it out of the traditional IRA balance,
• if you are nearing retirement, will need to start taking withdrawals soon and will not likely earn enough on the Roth IRA to make up for the taxes paid or
• if you are in a high tax bracket now and expect to be in a lower bracket once you retire.

Talk with a tax advisor or financial professional before making the decision.

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