Converting retirement assets from a Traditional IRA 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? Regardless of your answer, you should consider opening a Discover® IRA.

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

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 your heirs. Since required minimum distributions (RMDs) are not required from Roth IRAs, you may leave the money invested, which may result in a larger balance for heirs.
  • Federally tax-free withdrawals for those who are age 59½ or older and who have had the converted amounts invested in the Roth IRA for five years or more. 1

Potential drawback

When you convert proceeds from a Traditional IRA to a Roth IRA, you are required to pay taxes on the pre-tax amount that is converted for the year it is moved from the Traditional IRA. Because Traditional IRA contributions are typically made on a before-tax basis, the full amount of the conversion is usually taxable at ordinary rates. When a tax deduction was not taken for the Traditional IRA contribution, only the investment earnings portion of the conversion will be subject to tax upon conversion. If you have a mix of deductible and non-deductible contributions, you may need the assistance of your financial advisor to calculate the taxable amount of the conversion. It is also important to keep thorough records. This can be vital to minimizing the negative tax effects of conversion. A conversion, if done incorrectly, could trigger a 10% IRS penalty for early withdrawals or 20% rollover tax withholding. It is important to seek competent tax advice before completing a conversion.

Another important point to note is that a conversion may involve moving money within a financial institution. The most direct approach may be to open a Roth IRA at your financial institution and then transfer from your pre-existing Traditional IRA to this newly opened Roth IRA in a conversion transaction.

Another cautionary drawback to performing a Traditional IRA to Roth IRA conversion is that the conversion cannot be “un-done” through a recharacterization of the conversion amount.

Making the decision

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


In addition to offering IRA Accounts 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 or call our 24-hour U.S.-based Customer Service at 1-800-347-7000. 

The article and information provided herein are not guaranteed by any party and are intended for educational purposes only. Other factors not represented in this article may influence the amounts you are able to contribute or deduct. The information included is not advice and it may not reflect actual products, services, rates, APYs and/or terms available from Discover Bank. Nothing contained in this article is an offer, solicitation or guarantee for any product or service that ay be available from Discover Bank. You may want to contact a financial advisor or tax professional 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. Please consult your tax advisor with respect to information contained in this article and how it relates to you.

1 IRA 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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