The New Tax Law Makes Roth IRAs More Attractive: Part Two
Converting to a Roth IRA
There are no income limits on who can convert their existing retirement savings to a Roth IRA. So even if your income is high, you can transfer savings from a traditional, SEP, or SIMPLE IRA to a Roth IRA. You can also transfer savings from an old 401(k), 403(b), or governmental 457(b) plan to a Roth IRA, as long as you no longer work for that employer.
When you convert to a Roth IRA, you must pay ordinary income tax on the converted amount that was not previously taxed. This typically includes any earnings your savings have generated and any pre-tax or deductible contributions you made. Ideally, the tax should be paid from funds outside of your retirement account so that the full amount you convert can remain in the Roth IRA where it can compound tax-free.
How much of your savings you convert is up to you. You may want to consider converting just enough each year to avoid being pushed into a higher tax bracket.
The new tax law did make a change to Roth IRA conversions that you should know about: Conversions made after 2017 cannot be undone. This means that if you convert your savings to a Roth IRA, you cannot change your mind and convert them back to a traditional IRA.
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