The things to consider when deciding Roth IRA Conversion

Have you ever considered the Roth IRA conversion? Simply, the conversion process is moving your money from a Traditional IRA to a Roth IRA.
By the way, why do you consider this?

By contrast, after-tax money is used to fund a Roth IRA so it's not tax deductible. But earnings grow tax-free and in most cases you can totally avoid tax when you withdraw money.

If you consider moving 401k to Roth, you are planning so called 'rollover', not 'conversion'. So it will be a little different story.

Determining the benefits of the Roth IRA conversion should be based on your situation. That means your friends' answers are not necessarily right for you.

Moreover, it's not a matter of only numbers. If you consider non-financial benefits, the conversion will be harder question. So 'To convert or not' depends on YOU.

To begin with, I'll tell you why other people convert 'IRA' to 'Roth IRA'.

• To maximize retirement savings. With a Traditional IRA, you are doomed to pay deferred taxes when you withdraw. That means you may have retirement income far less than expected. But remember that you have to pay taxes on the Roth conversion also. If you want to compare the projected future value of your unconverted IRAs with your converted Roth IRA accounts, the Roth IRA conversion calculators may help you determine whether it's worth converting.
• To avoid RMD(Required Minimum Distribution). With a Roth, you don't have to wait until 59 1/2 to use money. Plus, nobody forces to withdraw when you turn 70 1/2 in contrast with a Traditional IRA. What if you don't need the money at that time? You have another great flexibility. If you have a mix of retirement accounts, you can fully utilize them as your tax rate rises or falls.
• To use the Roth as a wealth transfer tool. When you have to transfer your unused IRAs to beneficiaries, there will be different tax consequences. If they receive a Traditional IRA, they will have to pay income tax on withdrawals. But they will generally receive the money from a Roth IRA free from income taxes. The good news is that the new 2010 Roth conversion rule doesn't require the $100,000 income limit requirement. Therefore, if you were not eligible for the Roth conversion just because of the income limit, you are eligible from now on.

It's still little bit hard to decide, isn't it?

The Roth conversion decision needs to be made with care. Once you agree with these advantages, you need to consider some factors such as tax rate, investment period and conversion cost.

Finally, you have to check if you are eligible for the Roth conversion.