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For Some, Converting May Not Make Sense

For Some, Converting May Not Make Sense

Saving for Retirement

For Some, Converting May Not Make Sense

Due to tax benefits, many people have converted their conventional IRAs to Roth IRAs. Age can make or break an investor's ability to profit from a Roth IRA conversion. (Conversion can be attractive because withdrawals from Roth IRAs at retirement are tax-free, unlike conventional IRAs.) But before you do, consider your age: Roughly speaking it may take fifteen or even twenty years for the tax-free growth of a Roth IRA to make up for taxes you will pay when you convert.

Want a handy rule of thumb? If you're 55 or older, converting is a lot less likely to make sense – especially if you plan to start withdrawing money from the account before you retire. Before you convert, have a financial professional run the numbers to make sure you understand both the positives and the potential negatives.

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