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).

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 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.
  • 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

Investors who convert proceeds from a Traditional IRA to a Roth IRA are required to pay taxes on the pre-tax amount that is rolled over for the year it is distributed 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 distribution. 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. 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 cautionary drawback to performing a Traditional IRA to Roth IRA conversion is that starting in 2018, that 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 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 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 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 or call our 24-hour U.S.-based Customer Service at 1-800-347-7000. For IRA CD-related assistance, call 1-888-204-8966.

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 may 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.

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.

Banking 101

How to Recover From Being Scammed: Take These Proactive Steps

Experts share tips on what to do if you’ve been scammed out of money and how to protect yourself in the future.

Read Article
This is How CDs Work—and How You Can Use Them to Grow Your Savings

Say hello to
cash back on debit
card purchases.

No monthly fees.
No balance requirements.
No, really.

See Details

Discover Bank, Member FDIC


Family Finance

Banking for Busy Parents: 4 Essential Checking Account Features

You earned it.
Now earn more with it.

Online savings with no minimum balance.

Start Saving

Discover Bank, Member FDIC


5 Questions to Ask Before Repairing or Replacing an Appliance

Appliances on the fritz? Ask these questions before you call the repairman or head to the store.

Read Article


Considering a 401(k) Hardship Withdrawal? Here’s What You Need to Know

If you’re thinking of withdrawing money from your 401(k), it’s important to understand if you’re eligible, how the process works and what the potential downsides are before tapping into retirement savings.*

Read Article