Investments Personal Finance Retirement Taxes

Q&A: What is a Roth conversion?

A Roth conversion is a transfer from a Traditional IRA to a Roth IRA. Because money in a Traditional IRA is pre-tax (federal and state), the amount of the conversion counts toward Adjusted Gross Income (AGI) in the year it occurs.

Real-life Application: Person A has a Traditional IRA with a value of $100,000 and they would like to convert $5,000 of it into a Roth. Their AGI will go up by $5,000 for the year.

Pro Tip: A year when income is down (maybe due to a period of unemployment or less income) is a good time to do a Roth conversion.
See Q&A: What is bracket-topping?

Leave A Comment