A Roth IRA conversion takes place when existing savings in a traditional IRA are transferred to a Roth IRA. Once a traditional IRA is converted to a Roth IRA, it not only grows tax deferred, but withdrawals also become tax free if the owner is over 59½ and has held the account at least five years. In addition, Roth IRAs are not subject to required minimum distributions beginning at age 70½. However, income taxes are owed on converted amounts. You are more likely to recover the cost of the taxes if Roth IRAs are invested for 10 to 20 years or more and if the taxes due are paid with funds outside the converted IRA.
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