Roth IRAs offer a number of potential advantages over Traditional IRAs. Traditional IRAs allow for tax-deferred growth of retirement assets, with taxes being due when distributions are taken. Distributions of Roth IRA earnings are tax-free, as long as the Roth IRA has been open for more than five years and you are at least age 59 1/2, or as a result of your death, disability or using the first-time homebuyer exception. Distributions may be subject to a 10% additional tax if taken prior to age 59 1/2. Other features include: Show
Generally, a Roth IRA conversion makes sense if you:
A Roth IRA conversion may not be appropriate if you:
Before converting there are a few things to consider:
EligibilityAnyone is eligible to convert regardless of their income or tax filing status. 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 if you don't already have one, 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. Use our Roth IRA Conversion Calculator Use our Roth IRA Conversion Calculator to compare the estimated future values of keeping your Traditional IRA vs. converting it to a Roth. See an estimate of the taxes you'd owe if you convert, too. Why consider a Roth IRA conversion?Converting to a Roth IRA may ultimately help you save money on income taxes. For instance, if you expect your income level to be lower in a particular year but increase again in later years, you can initiate a Roth conversion to capitalize on the lower income tax year and then let that money grow tax-free in your Roth IRA account. See if a Roth IRA conversion is right for your own financial situation. calculator iframeCalculator Wrappers
This tax information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager. Depending on the type of account you have, there are different rules for withdrawals, penalties, and distributions. Please understand these before opening your account. Is a traditional IRA conversion to Roth taxable?Converting to a Roth IRA is a taxable event — federal income taxes are due on the value of pretax contributions and any earnings. Income limits were based on modified adjusted gross income (MAGI).
How do I avoid taxes on a Roth IRA conversion?If you start a Roth IRA with a conversion and earn a lot of investment gains and then decide to empty the account within five years of setting up your first Roth IRA, you will not owe ordinary income taxes on the converted money because you already paid those in the conversion.
What happens when you convert a traditional IRA to a Roth IRA?When you convert some or all of the money in your traditional IRA to a Roth, you have to pay income tax that year on the converted amount. 2 Even so, converting could be a smart move if you end up in a higher marginal tax bracket in later years or if tax rates rise overall.
Is there an income limit for converting a traditional IRA to a Roth IRA?You can't contribute to a Roth IRA if your modified adjusted gross income (MAGI) equals or exceeds certain limits ($140,000 for single filers and $208,000 for married couples filing jointly in 2021).
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