In short
A Roth conversion moves money from a traditional individual retirement account (or eligible plan) into a Roth account. The pretax amount converted is taxable now, in exchange for tax-free qualified withdrawals later.
Key takeaways
- It is most attractive when the taxpayer expects higher tax rates later.
- If the account holds after-tax contributions, the pro rata rule decides how much of the conversion is taxable, looking at all traditional accounts together.
- There is no income limit on converting.
Where it's tested
TCP: Retirement Planning Strategies — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A taxpayer has $90,000 in traditional IRAs, of which $9,000 represents nondeductible (after-tax) contributions. The taxpayer converts $10,000 to a Roth IRA. How much of the conversion is taxable?