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I help clients through life situations that impact their financial fitness.

Have You Considered Converting Your Traditional IRA to a Roth IRA?

There are tax advantages that come with the Roth IRA.

With a traditional IRA, you pay taxes on withdrawal. That could mean a big tax bill during your retirement years.

With a Roth IRA, although you don’t get a tax deduction now, you will not pay taxes when you take money out.

This could mean huge savings and more money for retirement.

If you need guidance on IRAs or retirement planning, contact me. Or schedule a free call now online.

Video Transcript

Hi there, Jonathan Peters here for my next installment or my financial fitness video series. Today, I want to talk about Roth conversion spin in the news a lot lately. So let’s talk a little bit about it. Do you have a traditional IRA? Or do you have a Roth IRA?

I know I have a traditional IRA, and majority of my clients also have them since they basically been around for many years, a lot longer than Roth. A question I want to ask you, where do you think taxes are going? Do you think they’re going higher, or lower. And that’s why I bring up this example about Roth conversion, Roth IRA conversion, let’s break it down.

If you have a traditional IRA, which I do as well, let’s just say you have $100,000, and you want to convert it to a Roth IRA. Now, with a traditional, you have to pay taxes right away. So if you’re in the 25%, tax bracket, taking out 100,000, it would cost you 25,000, leaving you with $75,000 left. So if you have a Roth IRA, and you have 75,000, let’s give them put them side by side. And let’s say in 20 years, your traditional IRA of 100,000, grows to a million, let’s say, you converted that. And now your Roth IRA has $1 million after 20 years with the same $75,000. Now, on a Roth IRA, you’re 75,000 worth a million dollars, you’re not paying any taxes on it.

With a traditional IRA, let’s just say, you started with 100,000, it’s now a million dollars, the same equivalent as a Roth IRA. You’re in a 25% tax bracket now, do you know what your tax bracket is going to be in in 20 years from now? We know what they’re proposing down in Washington. So think about that. Would you like a million dollars tax free, or a million dollars with a tax liability attached to it? And we don’t know where what that number is going to be?

So that’s why I asked, it might fit to think about an IRA conversion. One thing I will also want to talk about being that there are income limits on Roth IRAs is it’s called a backdoor conversion. Simply what that is, is you invest money in your traditional IRA, and convert it right away to your Roth IRA. So if you contribute $6,000 into your traditional IRA, you pay taxes only on the $6000 that go into your Roth IRA on the conversion. That is it. It’s because of these income limits that this can be done. It’s not a tax dodge, it is strictly legal. Okay. If you have any questions on something like that to see if you qualify, please don’t hesitate to call. Jonathan Peters here. Thank you for watching.


Roth IRA contributions are subject to income limits. A Roth conversion is a taxable event. Improper contributions may result in penalties. Consult with a tax advisor before making any decisions regarding Roth IRA contributions or conversions.

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