Home » Services » Roth Conversion

Roth Conversion

A Roth Conversion is a decision to convert an existing tax-deferred Individual Retirement Account (IRA) or 401(k) into a tax-free Roth IRA. The amount converted is treated as ordinary income. This is a way to strategically “pre-pay” your taxes on your IRA. Before making the decision it is wise to weigh both the benefits and costs of a Roth Conversion:

A Roth IRA is Beneficial because:

You avoid the uncertainty of tax rates, which most experts predict will rise. When you are forced to take the money out of a Traditional IRA at age 70 ½, your income gets taxed at whatever the tax rate is at that time. You have no control over this. In the Roth IRA there is no such Required Minimum Distribution, and you can decide to withdraw your money when tax conditions are favorable.
Your money grows tax-free for the rest of your life, and can be passed on to your beneficiaries tax-free.
Some taxpayers have special tax situations, such as net operating losses, charitable deduction carry-forwards, and investment tax credits, which make a Roth conversion very advantageous.
Roth IRA distributions are tax-free if made 5 years after the initial contribution to the plan and you are over 59 1/2. For the tax year 2018 and beyond, the decision to convert funds to a Roth IRA is irreversible.

A Roth IRA is Likely not Beneficial if:

You anticipate your marginal tax bracket to be much lower in the future than it is now.
You anticipate the value of your IRA will decrease between the time of conversion and the time you would have received distributions from your traditional IRA.
You plan to leave a substantial amount of your IRA to a charitable organization. Charities do not pay taxes; therefore, they do not need the tax-free benefit.
If you are considering a Roth conversion, it is a wise decision to consult a financial advisor so that you make the best decision possible.

Who We Are

What We Do

information

Blog insights

Instilling Financial Values in Your Family

3 Small Moves that Make a Big Difference in Retirement

How Does the New RMD Rule Affect Retirees?

Finding the Ideal Place to Live in Retirement

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, member FINRA / SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Stonepath Wealth Management are not affiliated. Information relating to securities is intended for use by individuals residing in Alabama, Alaska, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, Wisconsin, and Wyoming only. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Diversification and asset allocation strategies do not assure a profit or protect against loss. Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear the loss, including loss of principal. Cambridge does not offer tax advice. Check the background of this investment professional on FINRA’s BrokerCheck.