IRA Conversion Analyzer Help
Welcome to the IRA Conversion Analyzer™ provided by our partner Ascensus, Inc. Does a Roth IRA make sense for you? The IRA Conversion Analyzer contains educational information and three calculators to help you evaluate the benefits of converting Traditional IRA assets or rolling over employer-sponsored retirement plan assets to a Roth IRA.
This calculator uses a side-by-side comparison to help you determine whether converting to a Roth IRA is cost effective.
If you do not need to distribute your IRA or retirement plan assets for retirement income, the Roth IRA can be used as an effective wealth accumulation tool. Projections are provided for both first and second generation heirs.
Find the specific point at which converting a Traditional IRA or rolling over retirement plan assets to a Roth IRA becomes more beneficial than keeping assets in a Traditional IRA or a retirement plan.
These tools are designed for educational purposes only. It is not intended to be used as investment or tax advice. Because each individual's financial circumstances are unique, you should seek competent professional tax advice before deciding on any IRA option. By using this software, you agree to our Terms and Conditions.
Created by the Taxpayer Relief Act of 1997, a conversion is a taxable movement of assets from a Traditional IRA (including a Traditional IRA that holds simplified employee pension (SEP) plan contributions) or a savings incentive match plan for employees of small employers (SIMPLE) IRA to a Roth IRA. For a SIMPLE IRA, an individual must satisfy a two-year waiting period, which begins on the date the employer deposits the first SIMPLE IRA contribution, before she may convert SIMPLE IRA assets to a Roth IRA.
Certain individuals may roll over their employer-sponsored retirement plan assets to a Roth IRA. See "What is an employer-sponsored retirement plan-to-Roth IRA rollover?" for more information.
The difference between a Traditional and Roth IRA can be summarized by the following comparison.
|Traditional IRA:||Regular contributions may be tax-deductible|
|Roth IRA:||No deductions|
|Roth IRA:||Tax-free if used properly|
|Traditional IRA:||Includable in taxable income|
|Roth IRA:||Tax-free for qualified distributions|
The Tax Increase Prevention and Reconciliation Act of 2005 eliminated conversion eligibility requirements beginning January 1, 2010. Therefore, anyone may convert eligible assets in an existing IRA or roll over employer-sponsored retirement plan assets to a Roth IRA without having to meet any Roth IRA eligibility requirements.
Read "How much can I contribute to a Roth IRA?" to learn about the eligibility limits.
You must include in your gross income all pretax assets converted to a Roth IRA. You will not, however, be subject to the 10 percent early distribution penalty tax.
EXAMPLE:Oliver has only made deductible IRA contributions to his Traditional IRA. In 2016, Oliver decides to convert $20,500 from his Traditional IRA to a Roth IRA. Oliver will need to include $20,500 as income in 2016.
For any conversion made in 2010, the Tax Increase Prevention and Reconciliation Act of 2005 allowed the taxable amount of the conversion to be included in the taxpayer's gross income ratably in 2011 and 2012 unless he elected to include the entire taxable amount in 2010 income.
If you distribute conversion assets within five years of the conversion, a 10 percent early distribution penalty tax will apply unless you have a penalty tax exception.
The following factors may play a role in determining whether a conversion of Traditional IRA assets or a rollover of employer-sponsored retirement plan assets to a Roth IRA is the right choice for you.
- Anticipated tax rate at retirement
- Years until retirement
- Current tax rate
- Earning rate assumptions
- Distribution plans at retirement
For some individuals, there are significant tax saving opportunities provided by the Roth IRA conversion option. Conversion to a Roth IRA is not, however, right for everyone. Use the conversion calculator to gain a better understanding of how various assumptions can affect your decision.
Effective January 1, 2008, individuals may roll over pretax and after-tax employer-sponsored retirement plan assets to a Roth IRA. Individuals could roll over retirement plan assets only to other retirement plans or Traditional IRAs before January 1, 2008.
Like IRA conversions, if you roll over retirement plan assets to a Roth IRA (excluding designated Roth accounts in retirement plans), you must include the taxable portion of the distribution in your gross income. Once you roll over these assets to a Roth IRA, they continue to grow tax-deferred. If you meet the requirements for a qualified Roth IRA distribution, you may distribute the earnings tax-free. If you do not meet the requirements for a qualified Roth IRA distribution, you may owe tax or an IRS penalty tax on some or all of the assets.
The IRA Conversion Analyzer is designed to help you decide whether to convert Traditional IRA assets or to roll over retirement plan assets to a Roth IRA. The IRA Conversion Analyzer contains three calculators to assist you in estimating future retirement accumulations. The following calculators provide general information and comparisons to illustrate the amount of savings you may have available after converting Traditional IRA assets or rolling over retirement plan assets to Roth IRAs.
- The Basic Conversion calculator estimates whether converting Traditional IRA assets or rolling over retirement plan assets to a Roth IRA will provide more funds at retirement.
- The Legacy Planner helps you determine if a Roth IRA will provide the greatest benefit to your beneficiaries.
- The Breakeven Analyzer estimates the point at which converting a Traditional IRA or rolling over retirement plan assets to a Roth IRA becomes the best option.