But you’ll have to pay income tax on the amount converted. Fortunately, no matter how high your income, you’re eligible to convert a traditional IRA to a Roth. However, the ability to contribute to a Roth IRA is subject to limits based on your MAGI. (There could be estate tax consequences at your death if you have a very large estate.) Beneficiaries generally will be required to take distributions, but the distributions will be tax free. If you won’t need the money for retirement, you can let the entire Roth IRA balance continue to grow tax-free for the benefit of your heirs. In addition, you won’t be subject to RMDs. Plus, you’re allowed to withdraw contributions at any time tax- and penalty-free. But withdrawals (including earnings) are tax-free as long as you are age 59½ or older and the account has been open at least five years. Roth IRA contributions aren’t deductible. And you may face an even larger penalty if you don’t take your required minimum distributions (RMDs) after you reach age 73 (up from and going up to age 75 if you don’t reach age 73 before Jan. You’ll also face a penalty if you withdraw funds before age 59½, unless you qualify for an exception. However, you generally must pay income tax on withdrawals. Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you (or your spouse) participate in a qualified retirement plan, such as a 401(k). Here are some key differences between these two types of accounts: But if you have a traditional IRA invested in stocks, a decline may provide a valuable opportunity by allowing you to convert your traditional IRA to a Roth IRA at a lower tax cost. The volatility in the stock market may have caused the value of your retirement account to decrease.
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