Roth IRA Conversion Calculator

Roth Conversion Formula:

\[ \text{Net Benefit} = (\text{Future Value Roth} - \text{Future Value Traditional}) - \text{Conversion Tax} \]

Current Traditional IRA Balance:

USD

Years to Retirement:

years

Current Tax Rate:

Expected Retirement Tax Rate:

Expected Annual Return:

Net Benefit (USD):

Future Value Roth (USD):

Future Value Traditional (USD):

Conversion Tax (USD):

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From:	To:

1. What is Roth IRA Conversion?

A Roth IRA conversion is when you move retirement funds from a Traditional IRA to a Roth IRA. This requires paying taxes on the converted amount now, but allows for tax-free growth and withdrawals in retirement.

2. How Does the Calculator Work?

The calculator uses this formula:

\[ \text{Net Benefit} = (\text{Future Value Roth} - \text{Future Value Traditional}) - \text{Conversion Tax} \]

Where:

Future Value Roth = (Current Balance - Conversion Tax) × (1 + Annual Return)^Years
Future Value Traditional = Current Balance × (1 + Annual Return)^Years × (1 - Retirement Tax Rate)
Conversion Tax = Current Balance × Current Tax Rate

Explanation: The calculator compares the after-tax value of converting to a Roth IRA versus keeping funds in a Traditional IRA.

3. Importance of Roth Conversion Analysis

Details: Converting to a Roth IRA makes sense when you expect to be in a higher tax bracket in retirement or want to avoid required minimum distributions. The calculator helps quantify the potential benefit.

4. Using the Calculator

Tips: Enter your current Traditional IRA balance, years until retirement, current and expected retirement tax rates, and expected annual return. The calculator will show the potential net benefit of conversion.

5. Frequently Asked Questions (FAQ)

Q1: When does Roth conversion make sense?
A: When your current tax rate is lower than your expected retirement tax rate, or when you want to leave tax-free assets to heirs.

Q2: Are there income limits for Roth conversions?
A: No, anyone can convert regardless of income level, though high earners may face additional taxes like the Net Investment Income Tax.

Q3: Can I undo a Roth conversion?
A: Prior to 2018, you could recharacterize (undo) a conversion. Now conversions are permanent, so careful analysis is important.

Q4: How are Roth conversions taxed?
A: The converted amount is taxed as ordinary income in the year of conversion. No 10% penalty applies for conversions.

Q5: Should I convert all at once or over several years?
A: Spreading conversions over multiple years can help manage tax brackets and avoid pushing yourself into a higher tax bracket.