Roth Conversions: Do they enhance your financial plan?

August 17, 2020

A Roth IRA conversion is the process of moving money from an existing Traditional, Rollover or SEP IRA to a Roth IRA. There is no minimum or maximum dollar limit that you can convert in a year. However, when you convert assets, the taxable amount is added to your gross income for the calendar year in which the conversion takes place. The deadline for Roth IRA conversions is December 31st.

For example, if you have Apple Stock in your Rollover IRA and convert 100% of these shares to your Roth IRA, then you would add the value of the stock at the time of conversion to your gross income for that year. By converting these assets to your Roth IRA, you choose to pay the taxes now, and in the future (if you meet the qualified distribution requirements)* 1, then 100% of your Roth IRA distributions would be tax-free.

If you were to leave this same stock in your IRA, the growth would be tax-deferred until you take a distribution. Then, the amount of your distribution would be added to your taxable income for that year. While most Traditional, Rollover and SEP IRAs include only pre-tax dollars, there may be a few exceptions. Please reach out to an advisor at Financial Plans & Strategies to learn more.

When considering whether a Roth IRA conversion is right for you, there are many things to think about:

  1. Will you be in a higher tax bracket when you need to take distributions from your retirement?
    1. If you believe that your tax rate, or rates in general, may increase by the time you start taking distributions, it may be in your best interest to consider paying the taxes now at a lower rate and do a partial or full conversion.
  1. By doing a Roth Conversion, are you going to bump yourself up into the next taxable income bracket?
    1. It is important to analyze your current income and predict where you may fall in your tax bracket. A member of our team can help by looking at your income sources and analyzing if a conversion is right for you.
    2. If your income is lower in a certain year, this may be a great time to convert larger amounts to your Roth IRA. This is something to consider in 2020 if you were able to stop or reduce your Required Minimum Distributions (RMDs) due to the CARES Act. Read more on the CARES Act waiver of RMDs on our blog:
  1. If it is your goal to leave an inheritance for your family or friends, would you prefer to pay the taxes for them?
    1. The SECURE Act2 changed the way that non-spouse beneficiaries inherit IRAs. Previously, beneficiaries were able to spread out distributions over their lifetimes but were required to take annual RMDs. Now, all IRAs and Roth IRAs inherited by a non-spouse in 2020 and on must be liquidated by the beneficiaries within 10 years, which means that the IRA beneficiaries may be responsible for a large tax burden. Inherited Roth IRAs have tax free distributions if these are qualified. (If someone completes a Roth IRA conversion, a five-year period must be met for the distribution to be deemed as qualified.)

If you would like to discuss whether a Roth conversion would be beneficial for your current income situation and future goals, please give our office a call.


  1. “Designated Roth Accounts – Distributions,” Internal Revenue Service:,or%20after%20the%20employee's%20death. 
  2. “Key Provisions of the SECURE Act,” Vanguard: