​Sometimes, Converting to a Roth IRA Doesn’t Make Sense

​Sometimes, Converting to a Roth IRA Doesn’t Make Sense

11/1/2022 Tags: Announcements


You’ve probably heard of the tax benefits of a Roth IRA over a Traditional IRA. But that doesn’t always mean you should convert your traditional to a Roth.

Background and Benefits

We’ve talked previously about what happens when you do a conversion. But here are the highlights:

When you convert to a Roth, you can pay taxes on your traditional IRA assets now rather than later. This can make sense if you’ll be in a higher tax bracket when you retire.

Also, you can withdraw any amount you contribute to your Roth at any age without penalty. But of course, there are rules around that. For example, you can’t withdraw the earnings on your Roth. And you have to wait five years before you withdraw on any balances you converted from a traditional IRA. If you don’t wait, you’ll have to pay a 10% penalty at tax time.

Another benefit is that there are no required minimum distributions you have to take when you hit 72. (Keep in mind that if you do convert to a Roth, it can affect your Medicare premiums. You can see a current schedule here.)

Reasons Not to Convert

You Can’t Afford the Tax Hit Now — Kinda a no-brainer, but let’s do the math.

Say you want to switch your $100,000 traditional IRA to a Roth and are in the 32% tax bracket. That means you’ll have to pay $32,000 in taxes now.

What’s more, if you’re 59½ or older and pay that $32,000 from the IRA funds you’re converting, your new Roth starts with $68,000. What’s more, if you’re younger than 59½, you’ll owe income tax and a 10% penalty.

You Don’t Know What the Next 5 Years Hold — In addition to the five-year rule noted above, you also have to wait five years from the date your first Roth IRA was established to withdraw the earnings. Otherwise — you guessed it — another 10% tax penalty.

You’ll Be in a Lower Tax Bracket — A lot of retirees end up in lower tax brackets after they quit working. Also, where you live — and whether or not it has a state income tax — could mean that converting doesn’t make sense. It’s best to check with your CPA or tax and wealth advisor.

You’re Feeling Charitable — Let’s say you decide to leave your IRA to charity when you die. Most nonprofits are tax-exempt. So, those charities won’t be paying tax for withdrawing from your IRA.

Your Heirs Will be In a Lower Tax Bracket — If you’re planning to leave your retirement savings to someone, and they’ll be in a lower tax bracket than you, it might make sense for them to be responsible for the taxes. That said, your heirs may appreciate it if you do a Roth conversion so they don’t have to pay the taxes when you die. You can read more about the rules around inheriting IRAs on the IRS’s website here.

If you have questions about whether a Roth conversion is right for you, let us know.


Investment advisory services are offered through Avantax Planning Partners℠. Commission-based securities products are offered through Avantax Investment Services℠, Member FINRA, SIPC. Insurance services offered through licensed agents of Avantax Planning Partners. 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. The Avantax entities are independent of and unrelated to CP Financial Services, LLP. Although Avantax does not provide or supervise tax or accounting services, our Financial Professionals may offer these services through their independent outside business. Not all Financial Professionals are licensed to offer all products or services. Financial planning and investment advisory services require separate licenses.


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