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Is Converting To a Roth Smart?

QUESTION: Levi in North Dakota is done with Baby Step 3. He’s about to start investing. Should he convert his traditional IRA to a Roth IRA?

ANSWER: You’ll have to pay taxes on the amount you withdrawal, and it will be roughly a fourth of what you roll from a traditional IRA to a Roth IRA. If you move $100,000 from a traditional IRA to a Roth, it will cost you $25,000 in taxes.

If you have the money above your emergency fund and separate from your retirement, then yes, I would convert it. I would not cash out retirement to do it. I would not use emergency money to do it. And I certainly wouldn’t borrow money to pay the taxes to do it.

But if you can pay the taxes out of pocket that the conversion to a Roth IRA creates, then the Roth IRA will grow tax free. The other is just growing tax deferred. I would definitely go that route.

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