ROCHESTER, N.Y. (WROC) — CPA Jamie Block says now is a good time to consider converting your Individual Retirement Account to a Roth IRA.
Block discussed Roth IRA conversions Thursday during News 8 at Sunrise.
Taxpayers can move part or all of a traditional IRA to a Roth IRA. Doing this may require tax to be paid. Both traditional and Roth IRAs allow tax-deferred growth. The big advantage of Roth IRAs is the ability to withdraw the principal and earnings tax-free.
Block noted if you or your heirs anticipate being in a lower tax bracket in the future, converting now may not make sense. Also, since most conversions will increase income, you have to consider its effect on Medicare premiums, college financial aid, and income taxes.
When it comes to how much should someone convert, Block said it really depends on each individual’s facts and circumstance. “If you have a large donation this year, a Roth conversion would be favorable. If your income is lower this year, a Roth conversions may be a good option. I typically like to stay within close tax brackets. For example, if you are in the 10% bracket, I would use the 10% and 12%, but not necessarily bump you to the 22%. If you are in the 22% bracket, I would use the 22 & 24% brackets, but stay below the 32%.”
If you convert, you can pay any tax due from with the Roth IRA and you can also withdraw money tax free, but Block noted in both cases you are defeating the purpose of the account, which is to save money over time for retirement.
If you’re considering a Roth IRA conversion, Block suggested consulting a trusted CPA. For more “Smart Money” advice, visit the New York State Society of CPAs website, nysscpa.org/getmoneysmart.