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Welcome to Midwest Financial Group, Inc.

Building, Protecting and Preserving Net Worth

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9752 Lantern Road
Fishers, IN 46037-9612
  • Phone:
    317-570-4400
  • Fax:
    317- 570-4411
  • E-mail address: doug@dougsweet.com
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Building, Protecting and Preserving Net Worth

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Printed from: www.dougsweet.com
  • Midwest Financial Group, Inc.
  • 9752 Lantern Road, Fishers, IN 46037-9612
  • 317-570-4400 | doug@dougsweet.com

Roth IRA Conversion

Should You Convert Your Traditional IRA to a Roth IRA?

One issue to consider is that if you convert your traditional IRA to a Roth IRA, you will owe current federal income tax on the amount you convert.

When Congress created the Roth IRA, millions of Americans who already had traditional IRAs faced a new decision: “Should I convert to a Roth IRA?” Traditional IRAs feature deductible contributions, and withdrawals are taxed as income. Roth IRA contributions, on the other hand, are not tax deductible, although qualified withdrawals of both contributions and earnings from a Roth IRA are free of federal income tax. This calculator is designed to help you determine whether you should consider converting to a Roth IRA.

According to the Investment Company Institute, about 17% of U.S. households own a Roth IRA.

 

The results below, and on the following page, show the projected value of a traditional IRA vs. a Roth IRA, based on your estimates on the input page as well as the taxes that would be owed in each case. On the “Future value of assets used to pay taxes upon conversion less taxes (of earnings only)” line, it is assumed that this money would be invested separately in a taxable account. Based on this estimate, which type of IRA would be most beneficial to you?

Your Results

Taxes that will be owed when withdrawals begin from your traditional IRA: $0
Taxes that will be owed upon conversion of your traditional IRA to a Roth IRA: $0
Current IRA balance: $0
Projected IRA balance (traditional and Roth): $0
Taxes upon withdrawal — traditional IRA: $0
Taxes upon withdrawal — Roth IRA: $0
After-tax value — traditional IRA: $0
After-tax value — Roth IRA: $0
Future value of assets used to pay taxes upon conversion less taxes (of earnings only) on one-time distribution — traditional IRA: $0
Total after-tax amount — traditional IRA + Net Future Value of assets used to pay taxes upon conversion: $0
Total after-tax amount — Roth IRA: $0

Based on the information you entered, the graph below illustrates the value of the two types of accounts once you reach retirement age. Note that this illustration assumes that upon retirement you would begin withdrawing money from both accounts. However, one other feature of the Roth IRA you should be aware of is that you don’t have to begin taking withdrawals from the account until you want to, whereas with a traditional IRA, you must begin taking minimum withdrawals from the account by April 1 of the year after the year in which you reach age 70½ or you will be subject to tax penalties.

Estimated Value of a Roth IRA vs. a Traditional IRA

 

The information provided is not specific investment advice, a guarantee of performance, or a recommendation. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk. These calculations assume that all deposits made to your traditional IRA were deductible, and that withdrawals were taxed at the after-retirement tax rate you selected. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years and the distribution must take place after age 59½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime limit). To the extent that they exceed total contributions, non-qualified distributions are subject to a 10 percent federal tax penalty and are includible in gross income. Withdrawals from a traditional IRA before age 59½ may be subject to a 10 percent federal income tax penalty, and income taxes will be due. For advice concerning your specific situation, consult a tax professional.

This hypothetical example is used for illustrative purposes only. Actual results will vary.

The information in this calculator is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

This material was written and prepared by Emerald Connect, LLC.
© 2018 Emerald Connect, LLC. All Rights Reserved.

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Contact Us

9752 Lantern Road
Fishers, IN 46037-9612
  • Phone:
    317-570-4400
  • Fax:
    317- 570-4411
  • E-mail address: doug@dougsweet.com
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Securities offered through LPL Financial, Member FINRA/SIPC.  Investment advice offered through Charter Advisory Corporation, a registered investment advisor and a separate entity form LPL Financial.

The LPL Financial Registered Representative associated with this site may only discuss and/or transact securities business with residents of the following states:  AL, CA, CO, FL, GA, IA, IL, IN, MI, MO, NC, NJ, NV, NY, OH, OK, PA, SC, VA, WI

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