There are also some factors that
might make you shy away from a conversion.
"I, myself, would not do a conversion
if it was going to be taxed at any kind of high tax
bracket," says Kabaniss. "Why would somebody
in a 30 percent tax bracket purposely incur taxable
And think about what you eventually
want to do with the IRA. "If you are going to leave
your IRA to charity anyway, then there's really no advantage
to rolling it into a Roth," says Picker. "A
charity is tax-free, so why should you pay taxes on
You also want to ask your tax professional
if there are any state regulations that impact you if
you have a Roth, rather than a traditional IRA when
you hit retirement. In New York, for instance, only
the annual distribution counts as income if you're trying
to qualify for Medicaid, says Picker. But if you have
a Roth, then the entire account balance is counted.
If you want to convert your IRA, you
also need to have a little cash handy.
"Don't go broke to convert,"
says Slott. You don't want to put another mortgage on
the house or cramp your lifestyle just to convert your
If you think the move makes sense, and you don't have
a ton of money, consider a partial conversion. "You
can do it a little at a time," Slott says.
Convert just a portion of the account.
As long as you meet the income and filing requirements,
you can continue to convert a portion (or not) every
When you convert money from your traditional
IRA to a Roth, it counts as income. If the total of
your IRA account would increase your earnings enough
to kick you into a higher tax bracket, a partial conversion
could be just the ticket.
What if you complete your taxes and
discover that you were closer to the next bracket than
you thought and your conversion kicked you over? You
are entitled to yet another do-over (officially known
as "recharacterization"), where you can convert
the money back into a traditional IRA account. And for
tax purposes, it's as if it never left the traditional
account in the first place.
When in doubt, "I would say convert
more," says Slott. "A Roth conversion is one
of the rare second chances you get in the tax code."
And, in the meantime, if the value
of your investment skyrockets, you really win. You only
pay tax on the money you converted, leaving your new
gains tax-free. "It's like getting a bet in on
a horse after the race is over," says Slott. "It's
a tremendous opportunity."
Dana Dratch is a freelance
writer based in Atlanta.