Roth IRA Conversion

The results below, and on the following page, show the projected value of a traditional IRA vs. a Roth IRA, based on your estimates on the input page as well as the taxes that would be owed in each case. On the “Future value of assets used to pay taxes upon conversion less taxes (of earnings only)” line, it is assumed that this money would be invested separately in a taxable account. Based on this estimate, which type of IRA would be most beneficial to you?

Based on the information you entered, the graph below illustrates the value of the two types of accounts once you reach retirement age. Note that this illustration assumes that upon retirement you would begin withdrawing money from both accounts. However, one other feature of the Roth IRA you should be aware of is that you don’t have to begin taking withdrawals from the account until you want to, whereas with a traditional IRA, you must begin taking minimum withdrawals from the account by April 1 of the year after the year in which you reach age 72 or you will be subject to tax penalties.

Estimated Value of a Roth IRA vs. a Traditional IRA

The information provided is not specific investment advice, a guarantee of performance, or a recommendation. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk. These calculations assume that all deposits made to your traditional IRA were deductible, and that withdrawals were taxed at the after-retirement tax rate you selected. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years and the distribution must take place after age 59½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime limit). To the extent that they exceed total contributions, non-qualified distributions are subject to a 10 percent federal tax penalty and are includible in gross income. Withdrawals from a traditional IRA before age 59½ may be subject to a 10 percent federal income tax penalty, and income taxes will be due. For advice concerning your specific situation, consult a tax professional.