Converting to a Roth IRA in a Low-Income Year

Why Have a Roth?

Roth IRAs offer the opportunity for tax-free earnings – and those earnings can potentially accumulate for a long time since a Roth IRA owner has no obligation to take annual minimum distributions. Any withdrawals you choose to make from your Roth IRA after you have had it for five tax years would be both tax and penalty free after you reach age 59½.

Weighing the Tax Consequences

Projecting how much of your IRA you could convert before entering a higher tax bracket may be helpful. For example, single taxpayers in 2014 will see their 15% marginal rate jump to a 25% rate after their taxable income exceeds $36,900. Therefore, an individual with $30,000 in taxable income would have room for an additional $6,900 of taxable income from a Roth conversion before the marginal rate would change.

Call us for help with a Roth conversion analysis.