Should I convert to a Roth account during my rollover?

When rolling over your old 401(k), you have a choice to make:

Traditional IRA: Keeps your money tax-deferred, just like your 401(k). You'll pay taxes on withdrawals in retirement.
Roth IRA: You pay taxes now, but your qualified withdrawals in retirement are tax-free.

Understanding Roth Conversions

Converting to a Roth IRA can be a smart move, but it's important to consider the tax implications:

Immediate tax hit: You'll owe taxes on the entire amount you convert in the year of the conversion.
Long-term benefits: Tax-free withdrawals in retirement can be significant, especially if you anticipate being in a higher tax bracket then.

Factors to consider

Your current income and tax bracket: A lower tax bracket now might make a conversion more favorable.
Your retirement timeline: The longer your money has to grow tax-free, the more potential benefit from a Roth.
Your risk tolerance: Can you comfortably pay the taxes upfront for the potential of future tax-free growth?

Need help deciding? We recommend talking to a financial advisor to see if a Roth conversion is right for you. They can help you calculate the potential tax impact and make an informed decision.

The frequently asked questions, or FAQs, are intended to be helpful and to get you thinking in a more sophisticated manner about your account transfer and related issues. However, these are not meant for accounting, tax, finance, or legal advice, are not intended to be exhaustive and do not create any relationship or duty on our part to assist your particular situation. We offer no warranties on the accuracy or completeness of the information as there could be developments of any kind, including, but not limited to, any changes in relevant laws and regulations.