Roth IRA Conversion Calculator
To get more reliable results, it's very important for you to take many factors into consideration and understand that the results may vary depending on the input factors or assumptions. Total value of non-Roth IRAs If you have nondeductible contributions (after-tax contributions) in your converting IRAs, it may affect your conversion taxes you have to pay when you convert. And do not include your spouse's accounts for this calculation even if you file as married filing jointly because those are considered separately. Nondeductible contributions This is the amount contributed to your current IRAs with after-tax money. Because you already paid income taxes on that amount, you may not pay taxes again when you convert. If you are not sure whether you have nondeductible contributions, check your IRS form 8606 record because you should have filed it to make nondeductible contributions. Conversion amount The conversion amount matters because of the conversion costs. Keep in mind that you have to include the conversion amount to your gross income and it may affect your income tax bracket. If you expect the conversion taxes could be too high, you may consider a partial conversion. Determining the adequate conversion amount and affordable conversion costs may be the important matter of using a Roth IRA conversion calculator. Current age There is no age limit for converting IRAs to a Roth IRA. However, if you convert after age 70½, keep in mind that you are required to take one final minimum distribution for the year you convert. Expected retirement age Most Roth conversion calculators assume that you don't contribute to your Roth account after you retire. Therefore, the expected retirement age is the last year you make a contribution. If you plan to retire before age 59 1/2, keep in mind that you may be subject to the 10% penalty on the amount that was taxable at the time of conversion if you withdraw money within 5 year period(from the first day of the conversion year). Life expectancy Life expectancy determines how long you will withdraw money from your Roth account. If the calculator uses an annuity payout option, the annual retirement income from your Roth IRA will be determined by your life expectancy. Expected rate of return This is the anticipated average annual rate of return on your Roth investments from the current age to the expected retirement age. Most calculators assume that the return is compounded annually. Therefore, even 1% difference of the return may result very big difference for the retirement money. And make sure whether the conversions are made at the beginning of the year or the end of the year. Expected rate of return during payout period This is the anticipated average annual rate of return on your Roth investments during the retirement income payout period. Even though you don't contribute during this period, the remaining balance grows continuously. Therefore, this rate of return may affect the expected annual retirement income. Payout options Many Roth IRA conversion calculators assume that a lump sum will be withdrawn at one time in the retirement age. However, it's not realistic for retirees to use money in that way. Instead, you may withdraw money as planned or may not use money ever. Current tax rate You need to know your income tax bracket. For more reliable results, you'd better include all applicable federal, state and local taxes. In fact, tax rates may change in the future. However, for the calculation purpose, they are assumed not to change until the retirement age. Expected tax rate during retirement In fact, you don't have to much worry about this rate because qualified Roth IRA distributions may be completely tax-free. However, if you want to compare your Roth IRA investment return with return of other retirement account, you need to anticipate the tax rate during retirement. Conversion tax payment options If possible, you'd better pay the conversion tax with funds other than the converting IRAs. If you have to tap into your IRAs to pay the tax, you may lose the potential benefit of tax-free growth on the full amount of the conversion and potentially incur 10% early withdrawal penalty if you are under age 59 1/2. Expected inflation For most practical results, Roth IRA conversion calculators may require the expected inflation. If you take inflation into consideration, you may want to increase your retirement income every year.
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