Converting to a Roth IRA: Is it Right For You?

Get the pros and cons of converting your retirement assets.

Should you convert all or a portion of your Traditional IRA assets to a Roth IRA account? If the answer is yes, you should consider opening a Discover Roth IRA Certificate of Deposit (CD). Until recently, retirement investors desiring to convert all or a portion of a traditional IRA to a Roth could only do so if their modified adjusted gross incomes (MAGIs) were $100,000 or less. But this restriction was removed in 2010, permitting retirement investors at any income level to convert their assets. As a result, Discover Roth IRA CDs became attractive to an even greater number of retirement savers.

Whether a conversion is right for you depends on the amount of time you plan to leave the assets invested, your estate planning strategies, and the federal income tax bill that a conversion is likely to trigger.

Woman contemplating converting to a Roth IRA

Potential Benefits of a Conversion

Potential benefits of converting from a Traditional IRA to a Roth IRA include:

  • A larger sum to bequeath to heirs. Since required minimum distributions (RMDs) are not required from Roth IRAs, investors may leave the money invested, which may result in a larger balance for heirs.
  • Tax-free withdrawals for those who are age 59½ or older and who have had the money invested for five years or more. 1

Potential Drawback

Investors who convert proceeds from a Traditional IRA to a Roth IRA are required to pay taxes on the amount that is rolled over. Because IRA contributions are typically made on a before-tax basis, the full amount of the conversion is usually taxable at ordinary rates. If you have a non-deductible Traditional IRA, investment earnings will be taxed but the amount of your contributions will not. The conversion will not trigger the 10% penalty for early withdrawals.

Should You Do It?

A conversion from an existing Traditional IRA to a Discover Roth IRA CD may be more attractive the further you are from retirement. The longer your earnings can grow in your Discover Roth IRA CD, the more time you have to compensate for the associated tax bill. Careful consultation with your financial advisor and tax professional is a good idea before you make your choice.

Discover

In addition to offering IRA CDs to help you grow your retirement savings, Discover also offers an Online Savings Account to help you with your short-term savings goals and a full range of CDs to help you save for the future. Open an account online in minutes or call our 24-hour U.S.-based Customer Service at 1-800-347-7000. Please consult your tax advisor with respect to information contained in this article and how it relates to you.

The article and information provided herein are for informational purposes only and are not intended as a substitute for professional advice.

1IRA account holders (both traditional and Roth) may make qualified withdrawals before age 59½ only if they meet specific criteria established by the IRS (disability, qualified first-time home buyer, and others). Consult the IRS website for additional information.

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