Retirement

Convert IRA to Roth calculator

Calculate your earnings and more

In 1997, the Roth IRA was introduced. Since then, many people have converted all or a portion of their existing traditional IRAs to a Roth IRAs, where interest earned may be completely tax-free. Is this a good option? A conversion has advantages and disadvantages that should be carefully considered before a decision is made. This convert IRA to Roth calculator estimates the change in total net worth, at retirement, if you convert a traditional IRA into a Roth IRA.

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Definitions

Amount to convert:: Amount to convert from a Traditional IRA account to a Roth IRA. We assume that you are paying any taxes owed with funds that you have available outside of the account you are converting. If you are under 59 1/2, the IRS treats any money not directly rolled over to the Roth IRA as an early withdrawal - even if that money is used to pay the tax bill caused by the conversion and, except in the case of a rollover from a governmental 457(b) plan, the funds will be subject to a federal tax penalty unless an exception applies.
Non-deductible contributions:: The amounts, if any, contributed to your traditional IRAs or employer sponsored accounts made with after-tax contributions. It is important to note that you may not "cherry pick" funds that are either after-tax or pre-tax to convert. If you are not converting all of your IRAs or the entire amount in your employer sponsored plan, you must convert a pro-rated amount of the pre-tax (deductible) and after-tax (nondeductible) balance. All of your IRAs are added together and treated as one for this purpose.
Current age:: Current age.
Age at retirement:: Desired age at retirement.
Rate of return:: The annual rate of return for your IRA. This calculator assumes that your return is compounded annually. The actual rate of return is largely dependent on the type of investments you select. For example, from December 1999 to December 2009, the average annual compounded rate of return for the S&P 500 was -0.6%, including reinvestment of dividends. From January 1970 to December 2009, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 10.1% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a bank may pay as little as 1% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.
Current tax rate:: Current marginal income tax rate that will apply to conversion amount. Please note that the marginal tax rate for your conversion may be higher than your current marginal tax rate if the conversion moves your AGI into a higher income tax bracket. It is also possible, especially on very large conversions, that part of your conversion be subject to more than one tax rate. Below are the resulting tax rates and income ranges for 2010:
Tax rate at retirement:: Expected marginal income tax rate at retirement.
Investment tax rate:: Expected marginal tax rate (base this on expected capital gains rate) for investments. This calculator assumes that you invest the amount that you would have had to pay in taxes in a taxable investment account. The investment tax rate is used for calculating the annual return on these taxable investments. For many, this will be the same as their income tax rate. If you expect your non-IRA investments to be primarily from long-term capital gains or divdends.
Use 2010 Option to delay tax payments:: Check this box to use the 2010 option to delay your Roth Conversion tax payments to 2011 and 2012. This option is only available for conversions that take place in 2010. When this box is checked, no taxes are due for the conversion in 2010. In both 2011 and 2012, one half of your converted amount will be added to your income and subject to income tax. Please note that under current law, existing tax rates are set to expire at the end of 2010 and, absent further congressional action, will revert back to the higher rates in place in 2001 beginning in 2011.

Filing Status and Income Tax Rates 2010 Caution: Do not use these tax rate schedules to figure 2009 taxes. Use only to figure 2010 estimates.
Tax rate	Married filing jointly or Qualified Widow(er)	Single	Head of household	Married filing separately
10%	$0 - 16,750	$0 - 8,375	$0 - $11,950	$0 - 8,375
15%	$16,751- 68,000	$8,376- 34,000	$11,951- 45,550	$8,376- 34,000
25%	$68,001- 137,300	$34,001- 82,400	$45,551- 117,650	$34,001- 68,650
28%	$137,301- 209,250	$82,401- 171,850	$117,651- 190,550	$68,651- 104,625
33%	$209,251- 373,650	$171,851- 373,650	$190,551- 373,650	$104,626- 186,825
35%	over $373,650	over $373,650	over $373,650	over $186,825

Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

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