7 Times When Converting To A Roth IRA Pays Off The Most

This year and perhaps next could turn out to be the best time to convert a traditional IRA to a Roth IRA. Income tax rates are likely to increase in the coming years. This year’s tax rates could be the lowest for the rest of our lifetimes. Lifetime income taxes could be substantially lower if you pay taxes on today’s IRA balance at today’s tax rates instead of paying higher tax rates in the future on a larger IRA balance.

There also could be reasons unique to you that make 2021 or 2022 an even better time to convert all or part of your IRA. Even if you looked closely at making a conversion in the past and decided against it, a change in your circumstances could tilt the factors in favor of making a conversion.

Here’s a review of the situations and events that could make a conversion more profitable. Monitor your financial situation during the year so you don’t miss one of these opportunities.

Not enough tax diversification. Tax diversification means having investment assets in each of the three types of accounts that have different tax consequences: taxable accounts, traditional IRAs and other tax-deferred accounts and Roth IRAs and other tax-free accounts.
 

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