What Is the Purpose of a Roth Conversion Calculator?


Quick Answer

A taxpayer planning for retirement uses a Roth conversion calculator to determine whether to convert his traditional IRA to a Roth, explains the Teachers Insurance and Annuity Association of America - College Retirement Equities Fund. Considerations include tax rates, the length of time until retirement and the individual's estate planning.

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Full Answer

A taxpayer who projects higher income tax rates in his retirement years may pay less tax overall by choosing to convert a traditional IRA to a Roth. A Roth conversion calculator uses the taxpayer's estimated tax burden to project and compare the lifetime value of a traditional IRA and a Roth. Traditional IRAs are tax-deferred accounts, generally with pre-tax contributions and taxable distributions. Roth IRAs receive funds through after-tax contributions, but qualifying distributions are not subject to taxes. Roths are also not subject to required minimum distributions, allowing the account to continue growing during the owner's lifetime, notes Vanguard.

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