Should You Consider A Roth Conversion?

Christopher D. Flis |

Individual Retirement Accounts (IRAs) exist primarily in two forms: Traditional and Roth. Anything under the Traditional umbrella is income tax-deferred, meaning the funds are not taxed upon receipt, are permitted to grow tax-deferred, and are then ultimately taxed upon receipt. Funds under the Roth umbrella work differently: you pay the taxes upon receipt of the funds and then the funds enjoy tax-free status for “forever.” 

One (of many) wrinkles in the tax code permits the conversion of Traditional funds to Roth. Like most financial decisions, the advisability of a financial strategy is highly dependent on an individual’s situation. Let’s look at the ins and outs of a Roth conversion to see if it would benefit you. 

Some Nuances About IRAs

The decision for Roth versus Traditional generally boils down to income tax rates. If income tax rates were uniform throughout one’s life, the decision would be moot as the funds available at a later date would be identical. I could prove it via a spreadsheet, but who wants to suffer through one of those unnecessarily? More on the income tax considerations in a bit.

Another caveat has to do with one’s income. Generally speaking, anyone can contribute to a Traditional IRA, though the deductibility of the contribution is based on income. There are different rules for single and married couples, and the IRA owner must consider if he/she is covered by a retirement plan from their employer—a serious consideration for Military Members.  

Another consideration for IRAs deals with who can do conversions and how the conversions are taxed. This gets pretty complicated when the IRA owner has deductible and non-deductible account balances as the “pro rata” rules come into play, which are pretty complex and require some equations and spreadsheets, which I will again save you from. Suffice it to say, it is worth getting a second opinion when making such a decision.

Benefits Of A Roth Conversion

There are numerous benefits to a Roth conversion. Here are a few of them:

  1. You take advantage of today’s historically low tax rates.
  2. You insulate yourself from future tax increases.
  3. There are not requirements for mandatory distributions at age 72 as there are for Traditional IRAs.
  4. Roth IRA distributions are not included in the calculations for the taxability of Social Security benefits.
  5. Heirs can maintain the tax-free status of Roth IRA funds for a period of 10 years with distributions also being income tax-free. 

Roth conversions are not entirely a slam dunk. So as I alluded to before, it is probably a very good idea to seek a professional opinion if you are pondering this strategy.

Getting to the good part, the big question is, when should you convert your IRA? Is there an ideal time to pay the taxes and make the change?

When Should I Convert My IRA?

There are many scenarios to consider when deciding when you should convert your IRA. The most important factor to consider is your current tax bracket. If you find yourself in a lower tax bracket due to unemployment, medical expenses, business loss, or significant tax credits, it might be worth it to convert now. If you expect your income and tax rate to increase in the years to come, now may be the ideal time to make the change. 

As I said previously, it is ideal to pay the income taxes on the conversion with separate non-IRA funds. If the only funds are from the IRA account itself, the resulting amount converted to the Roth IRA will be less; however, the funds will be income tax-free, which may be a preferred ending situation. Again, a professional opinion is advisable.

How It Works

The process to convert your IRA includes withdrawing the amount you’d like to invest in a Roth, paying the tax owed on the distribution, then reinvesting it into a Roth account. Keep in mind that there are many complex factors involved in the conversion process. If you are already taking RMDs, you must take it first and then convert the remainder. Conversions are not an all-or-nothing decision and have no minimum amount requirement, so you can convert as little or as much of your IRA as you’d like.

Is A Roth Conversion Right For Now? 

A Roth conversion is an advantageous way for high-income earners and Traditional IRA account holders to access the benefits of a Roth IRA and possibly lower their tax burden over the long haul. However, because of the many tax implications, it’s a decision that is not to be taken lightly. It’s important to work with an experienced financial professional to ensure you are making the most of your investments and not paying more taxes than necessary. 

Here at Resilient Asset Management, we can help you determine if a Roth conversion is the right fit for you and help you implement the process. Schedule a 30-minute introductory meeting or contact us at or (901) 318-3423 to get started. 

About Christopher    

Christopher Flis is founder and financial planner at Resilient Asset Management, a fee-only Registered Investment Advisor (RIA) based in Tennessee. Chris graduated from the United States Naval Academy with a bachelor’s degree in computer science, earned a Master of Science in Computer Science from the University of Minnesota, and attended flight school in Pensacola, FL, launching a fulfilling and distinguished military career. Chris spent 20 years in the Navy as an F/A-18 Strike Fighter Pilot, which included tours in Japan, Australia, and California, combat missions in all areas of the Persian Gulf and Afghanistan, and time spent as the Executive Officer of Naval Base Guam and Director of Navy Casualty in Millington, TN. When Christopher was ready to make a career change, he turned to a passion he held since high school when he attended a lecture on personal finance and started managing his own investments. He earned his Certified Financial PlannerTM (CFP®) designation and now combines his passions and experience by serving military, retired military, business owners, and retirees. Chris provides comprehensive, customized financial services, helping his clients overcome their challenges and take opportunities so they can achieve financial independence. 

Chris lives in Downtown Memphis with his wife, Christine, and his son, Emerson. He is an avid runner and when he is not jogging for exercise, he is usually chasing his son around or walking his 3 dogs. To learn more about Chris, connect with him on LinkedIn.