To convert or not convert traditional retirement savings into a Roth IRA? That’s likely a big question Generation X will have to answer soon as they head into retirement, experts say.
Roth accounts offer retirees a lot of benefits that traditional 401(k)s don’t. Roth accounts have tax-free withdrawals, aren’t subject to required minimum distributions (RMD) and aren’t taxable to heirs.
But Roth IRAs didn’t exist until 1997, a decade or more after Gen X (born between 1965 and 1980) started working, which means there’s a good chance most of Gen X savings are in traditional accounts. With retirement closing in, they may be scrutinizing their retirement accounts and wondering if they should convert their savings to a Roth to better manage taxes in retirement.
Like most other financial decisions, “it’s a very personal decision and has to be evaluated individually,” said Jaime Eckels, wealth management partner at Plante Moran Financial Advisors.
Below are some things experts say you should know and consider when deciding.
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What is a Roth conversion?
A Roth conversion means you’re moving traditional pre-tax retirement savings to a Roth IRA. You can convert the full amount in your traditional account or just a portion of it.
Since you’ve never paid tax on the money in your traditional account, you’ll have to pay taxes on it when you move it to a Roth account, which is funded with after-tax money. The…
