When is a good time for Roth conversion?

If you’ve thought about contributing to a Roth IRA, but you made too much money during your working years, you can have a second chance — through a Roth conversion.

As you may know, a Roth IRA provides taxfree withdrawals, provided you’ve had the account at least five years and you’re at least 59½.

A Roth’s income limits may have kept you from contributing. However, you can convert your traditional IRA to a Roth. It’s not hard to do, but there’s a catch — you’ll have to pay taxes on the pre-tax dollars you convert.

To help avoid a big tax bill, you might want to make the conversion during a year in which your total income is down. Another good time to convert might be when the financial markets are down. Since the value of the investments in your traditional IRA will have dropped, your conversion will generate less in taxes.

Also, you could spread the conversion over several years, reducing the tax bite in any given year.

See your tax advisor before making a conversion. If it’s appropriate for your situation, you may find that owning a Roth IRA can benefit you and your family for years.