When to Avoid an IRA to Roth Conversion

If you are considering an IRA conversion to a Roth IRA, there are a number of different factors that you will need to look at. In some cases, it does not make sense to make the conversion. Here are a couple situations in which you will want to avoid converting from a traditional to a Roth IRA.

No Cash on Hand

When you make the conversion to a Roth IRA, you are going to have to pay for the taxes on the money that you convert. A traditional IRA is an account that is funded with pre-tax money. This means that you have never paid any taxes on the money in the account. When you transfer to a Roth IRA, you are putting money into an account that is funded with after-tax dollars. You should always pay the taxes with money from your pocket instead of with money from your retirement funds. If you do not have enough money, avoid the conversion.

Tax Brackets

You will also want to think about the impact of tax brackets. If you are going to be in a lower tax bracket when you retire than you are now, it would make sense to stick with a traditional IRA. This way, you will pay the government less money in taxes.

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