Roth Conversion
RetirementGlossary term
Definition
The process of moving money from a traditional IRA or 401(k) to a Roth IRA, paying income taxes on the converted amount in the year of conversion. This strategy can be advantageous when you expect to be in a higher tax bracket in retirement.
Related terms
- Roth IRAA retirement account where contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free. Particularly beneficial for younger investors.
- Traditional IRAA retirement account with tax-deductible contributions (if eligible) and tax-deferred growth. Withdrawals in retirement are taxed as ordinary income. RMDs required at age 73.
- Backdoor Roth IRAA strategy that allows high-income earners who exceed Roth IRA income limits to contribute by first making a non-deductible contribution to a traditional IRA, then converting it to a Roth. The pro-rata rule may cause partial taxation if other traditional IRA funds exist.
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