A Roth IRA is an individual retirement account that allows you to stash away after-tax dollars now and make tax-free withdrawals in retirement. Investing in one can be super advantageous — so much so that for some savers, it makes sense to convert their traditional IRA into a Roth IRA. 

You may want to consider a Roth IRA conversion if you’re in a lower tax bracket now than you expect to be in retirement or your income is too high to contribute to a Roth IRA otherwise. It may also make sense for savers who want their money to grow tax-free for themselves or their heirs longer than a traditional IRA would allow.

A Roth conversion doesn’t make sense for everyone, so it’s a good idea to speak with a financial advisor or a tax expert before making the move. 

Benefits of a traditional IRA

Traditional IRAs allow you to set aside money for your golden years in a tax-advantaged way. Their benefits include: 

  • Tax-deferred growth. When you contribute to a traditional IRA, you don’t have to worry about paying taxes on the money in that account until you withdraw it in retirement. It may make sense to calculate your potential earnings in an IRA versus a Roth IRA. 
  • Contributions may be deductible. Contributions to your traditional IRA may be fully deductible, which can help lower your taxable income for the year. However, the amount you deduct may be limited if you or your spouse have a retirement savings account through your job(s) and your income exceeds certain levels outlined by the IRS. 
  • No income restrictions. While you can only make contributions to a Roth IRA as long as your income is under a certain amount ($161,000 for single filers in 2024, and $240,000 if you’re married filing jointly), there are no income limitations for contributing to a traditional IRA. (There’s a loophole for contributing to a Roth IRA if your income is above the limits: High earners can convert their IRA into a Roth IRA, which is called a “backdoor” Roth IRA. ) 

Benefits of a Roth IRA

For some people, it makes sense to convert their traditional IRA into a Roth IRA. Roth IRAs come with some big benefits, including: 

  • Tax-free withdrawals. Contributions to Roth IRAs are made with post-tax dollars. Once you hit age 59 ½ and you’ve had your Roth IRA open for at least five years, you can withdraw your money without paying any penalty on the contributions or earnings. That can be a major plus for people in various financial situations, but it makes a Roth IRA especially appealing if you’re going to be in a higher tax bracket when you withdraw your money than you currently are. If you do need to withdraw your money before retirement, these accounts are less restrictive than traditional IRAs as you can withdraw the contributions (not earnings) from a Roth IRA before age 59 ½ without facing penalties or taxes. 
  • No RMDs. Unlike traditional IRAs, Roth IRAs don’t require you to make withdrawals from your once you reach age 73. That means your money can grow tax-free for as long as you’d like, even once you’ve hit retirement age. 
  • Tax-free growth for heirs. Beneficiaries are required to withdraw the money from a Roth IRA that they inherit within 10 years of the original account owner’s death. But unlike with a traditional IRA, those beneficiaries don’t have to pay taxes on those withdrawals. If you’re planning to pass down the money in your IRA, a Roth conversation may make sense as the money will grow tax-free and you won’t leave your beneficiaries with a tax burden. 
  • Tax diversification. Having a Roth IRA gives you more options to consider when you’re making withdrawals in retirement than you would have if you only have tax-deferred accounts. 

How to transfer from a traditional to a Roth IRA

If you’ve determined that converting your traditional IRA to a Roth IRA makes sense, here’s your step-by-step guide: 

  1. Open a Roth IRA. You can open a Roth IRA via traditional brokerage firms like Charles Schwab and Fidelity, as well as with robo-advisors like Betterment. In order to open an account, you’ll need to fill out some paperwork with information such as your Social Security number, address and date of birth. 
  2. Follow instructions from your plan administrators. If you’re transferring money from your traditional IRA with one plan administrator to a Roth IRA with another administrator, you’ll need to contact both plan administrators. They’ll be able to give you instructions for making the conversion. If both your accounts are on one platform, you’ll likely be able to do the conversion easily online. 
  3. Choose the amount you’d like to convert. You can convert all of the money in your traditional IRA into a Roth IRA, or choose a smaller amount. Once you have instructions from your plan administrator you’ll need to select the amount you’d like to convert, as well as the type (positions, cash or both). 

Potential pitfalls to consider

You’ll need to pay taxes on the money you convert from a traditional IRA into a Roth. The money you convert will be taxed as ordinary income. That’s why some investors decide to do a Roth conversion when their IRA balance is down.

Before you decide on the conversion, make sure you have enough money to cover the taxes. While you can pay for the taxes with some of the money you convert, it’s not advised, since that money then can’t grow tax-free, you may face a 10 percent penalty on some of the money if you’re under age 59 ½. 

When you convert, you’re also risking that you may be in a lower tax bracket later, reducing the benefits of the conversion. A Roth conversion could also put you into a higher tax bracket, which would make the move significantly less appealing. That’s why it’s best to speak to a financial advisor or tax expert before doing the conversion. 

Another potential pitfall is the five-year rule. If you withdraw money from your Roth IRA within five years of the account being opened, you may face a 10% early withdrawal penalty. The five years begins on the first day of the year in which you convert. 

Bottom line

A Roth IRA conversion may make sense for you depending on your situation, but it’s important to understand the pros and cons — and potentially speak to a financial advisor or tax expert — before making any moves. If you determine you do want to convert your traditional IRA into a Roth IRA, you’ll have to open a Roth IRA and contact plan administrators for both accounts.