Financial Education Center

IMPORTANT NOTE: See the section Roth IRA Conversions to learn about Roth IRA conversions that may be available to you even if you do not meet the criteria for a Roth IRA.

From tax year 2010 the modified gross income limit is eliminated, allowing higher income taxpayers to convert traditional IRAs to Roth accounts. You are required to pay tax on the deductible and pre-tax contributions and any earnings on the date of the conversion. The 10% early distribution penalty does not apply on the conversion.

If you are eligible to establish a Roth IRA, you will need to consider if you should roll over your qualified retirement plan money into a traditional IRA and then convert it to a Roth IRA. The analysis is quite complicated and the assumptions regarding your tax bracket before and after retirement will help you make the decision.

For example, if you estimate that your current tax bracket will be the same as your tax bracket in retirement, it may make sense to convert a traditional IRA to a Roth IRA upon rolling over the qualified retirement money into the traditional IRA.

If, on the other hand, you are currently in a high tax bracket (say 28%) and you estimate your bracket in retirement to be much lower (say 15%), then it may not make sense to convert the traditional IRA to a Roth IRA.