It's generally a good idea for most investors to consider including a Roth IRA in their overall retirement planning. Investments in your Roth IRA have the potential to grow tax-free, which may help you save more over time. Plus, Roth IRAs don't have required minimum distributions during the lifetime of the original owner, and Roth IRA assets may pass to your heirs tax-free.
Determining if a Roth conversion is right for you
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Roth Conversion Checklists
Follow these simple steps to convert your Traditional IRA or old 401(k) to a Roth IRA.
Anyone can convert their eligible IRA assets to a Roth IRA regardless of income or marital status. Prior to 2010, only those account owners who had a modified adjusted gross income below $100,000 were eligible to convert.
Despite its advantages, Roth may not be the preferred option for all investors. There are three important factors—taxes, time, and costs—that you should consider before you decide if conversion is right for you. Fidelity's Roth IRA FAQs can help you weigh these factors and get answers to important questions you may have. Be sure to consult with your tax advisor with regard to your personal circumstances.
To learn more about the differences between Roth and traditional IRAs and get a quick overview of eligibility and features, use the Roth or Traditional IRA Contribution Evaluator.
It's also important to note that if you are required to take a required minimum distribution (RMD) in the year you convert to a Roth IRA, you must do so before converting.
Considerations for owners of Roth IRAs
Distributions from a Roth IRA are qualified, and thus tax-free and penalty-free, provided that the 5-year aging requirement has been satisfied and at least one of the following conditions has been met:
- You reach age 59½
- You pass away
- You are disabled
- You make a qualified first-time home purchase
All other distributions are non-qualified. Non-qualified distributions of converted balances are not taxed again (since they were taxed when converted), but they may be subjected to a 10% penalty unless it's been at least five years since the beginning of the year of your conversion, you've reached age 59½, or one of the other exceptions applies.
RMDs are not required during the lifetime of the original owner of a Roth IRA. RMD amounts are not eligible to be converted to a Roth IRA.