Roth IRAs offer a number of potential advantages over Traditional IRAs. While Traditional IRAs allow for tax-deferred growth of retirement assets, qualified Roth IRA withdrawals are tax-free after age 59 1/2, as long as you hold the Roth for at least five years. Withdrawals may be subject to a 10% federal tax penalty if distributions are taken prior to age 59 1/2. Other features include:
- With a Roth IRA, unlike Traditional IRAs, you are not required to begin taking distributions at age 70 1/2.
- A Roth IRA can be used as an estate planning tool because the assets can be passed on tax-free to your heirs.
- Tax diversification of retirement assets allows for more flexibility to manage taxable income in retirement.
Generally, a Roth IRA conversion makes sense if you:
- Won’t need the converted Roth funds for at least five years.
- Expect to be in the same or a higher tax bracket during retirement.
- Can pay the conversion taxes without using the IRA funds themselves.
- May not need the funds for retirement and may want to transfer them to your heirs.
Assess your situation with our Roth IRA Conversion Analyzer
Before converting there are a few things to consider:
- The availability of funds to pay income taxes. The benefits of a conversion are increased if the income taxes due can be paid out of non-IRA assets.
- To help manage your tax liability, you may choose to convert just a portion of your assets. There is no limit to the number of conversions you can do, so you may convert smaller amounts over several years.
- Your time horizon. Generally, if you will need the funds within the next five years, a Roth IRA is not a good choice. This is because a five-year waiting period is required before you can withdraw earnings income-tax and penalty-free. The longer the assets in the Roth IRA can be left untouched, the greater the benefit of tax-free accumulation.
Changes to eligibility
Thanks to changes in 2010, the $100,000 Modified Adjusted Gross Income (MAGI) and tax filing status limits on Roth conversions no longer apply.
To discuss the potential advantages of Roth IRAs and Roth IRA conversions with a Wells Fargo retirement professional, call 1-877-493-4727. To determine whether a Roth IRA conversion is right for you, talk to your tax advisor.
Converting to a Roth IRA may seem like a lot of work, but we can make it easy. Just call a Wells Fargo retirement professional at 1-877-493-4727, and we’ll work with you throughout the conversion process.
Here’s what to expect:
Step 1 – Contact a Wells Fargo retirement professional at 1-877-493-4727 to initiate your conversion request and get an overview of the process.
Step 2 – Our team will help you open a new Roth IRA account, fill out the appropriate paperwork, and answer any questions you may have.
Step 3 – An account form will be sent to you (emailed, faxed, or mailed) to initiate your conversion.
- Whether you’re converting a Wells Fargo Traditional IRA, an IRA from another financial institution, or an employer-sponsored retirement plan, such as a 401(k), we’ll walk you through the process to make sure all of your questions are answered.
Step 4 – Return the paperwork (email, fax, or mail) to complete your request.