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Should I Do a Self-Directed Roth IRA Conversion?

There is generally no right or wrong answer when t comes to whether an individual should convert his or her IRA funds from a pre-tax self-directed IRA to an after-tax Roth IRA. Clearly the advantage of having a Roth IRA is that once you reach the age of 591/2 and the Roth IRA has been opened at least five years, all income and gains from the Roth IRA will be available via a distribution without tax or penalty. In light of the perception that tax rates will rise in the future, having the ability to generate income and gains without ever paying tax is a really exciting proposition for may people. Of course, the downside of getting your pre-tax IRA to an after-tax Roth IRA, is that you will have to pay tax on the assets being converted, whether they are cash, stock, real estate, etc.

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When deciding whether a Roth IRA conversion makes sense for you, below are some important points to consider which will help you make your decision

  • Do you have the ability to pay income taxes on the money you convert from your Traditional IRA?
  • Based on your income tax bracket, does it make sense to pay the entire tax due in 2015. If you expect your rate to go up, converting may be for you. If you think it will go down, then the opposite holds true.
  • Do you anticipate withdrawing Roth IRA funds for personal use within five years of conversion? If so, you may face taxes and penalties if you withdraw within five years of a conversion.

Converting a Traditional self-directed IRA to an after-tax Roth Self-Directed Roth IRA LLC has a number of tax advantages and can offer you multiple tax and investments benefits. The key is weighting the future tax benefits with the current tax hit.

For additional information on the self-directed Roth IRA conversion rules, please contact a retirement tax specialist at 800-472-0646

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Posted in Self-Directed IRA