I have $8K saved in a Traditional IRA and I'm considering converting it to a Roth.?

Question

I will obviously have to pay taxes and incur the gov't tax penalty for early distribution, so I'm not sure if it's worth it. Should I just let it sit?

Answer 1

Converting to a Roth is the smart thing to do if you have the money to pay the taxes. Make sure you pay the taxes from the outside, and don't withhold from your IRA money.

The theory is this. If you are 30 years from retirement and you have $8000 in a traditional IRA.... When you retire, assuming it doubles every 7 years, it will be worth about $66,000. You will pay taxes on $66,000 as you take it out.

If you convert it to a Roth now, you pay taxes on the $8,000. But when you retire you pay ZERO taxes on the $66,000.

I'd rather pay taxes on the $8,000... And not the $66,000.
Just my opinion.

THERE ARE NO PENALTIES INVOLVED WITH A ROTH CONVERSION. Ignore the dude above me.

Answer 2

The 10% penalty for early distribution does not apply to conversion from a traditional IRA to a Roth IRA. Also, if you keep it in the traditional IRA, you will have to pay taxes on it eventually anyway, and the taxes may be more then. If you expect to be in a lower tax bracket at some future time (including when you are retired), then let it sit until then. If you expect to be in your current tax bracket (or higher) for the rest of your life, convert now.

Answer 3

I recommend leaving it as is. If you don't want to contribute to the conventional IRA anymore, start a Roth IRA.

Answer 4

You have to pay taxes but not the penalty.

Answer 5

why would you do that? - you'll lose 30+% to taxes and penalty immediately - that makes no sense. Leave it where it is

Answer 6

the younger you are the better.