The Magic (and Cost) of Converting to a Roth IRA

The payoff is tax-free income in retirement. The cost, on the front end, is a significant tax bill on any funds you convert from a traditional IRA.

In the Brothers Grimm telling from the early 19th century, a strange little man named Rumpelstiltskin could spin straw into gold. But you have the 21st-century opportunity to do something very similar, and it’s no fairy tale. You can transform fully taxable retirement income into completely tax-free cash.

This is the first year ever that higher-income taxpayers -- the people most likely to be able to afford to convert a traditional IRA to a Roth -- are allowed to do so. If you take the plunge, all future earnings and all withdrawals in retirement will be tax-free. If you stick with the old-fashioned IRA, the tax picture in retirement is grim indeed: Every dime you withdraw will be taxed in your top tax bracket.

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Kevin McCormally
Chief Content Officer, Kiplinger Washington Editors
McCormally retired in 2018 after more than 40 years at Kiplinger. He joined Kiplinger in 1977 as a reporter specializing in taxes, retirement, credit and other personal finance issues. He is the author and editor of many books, helped develop and improve popular tax-preparation software programs, and has written and appeared in several educational videos. In 2005, he was named Editorial Director of The Kiplinger Washington Editors, responsible for overseeing all of our publications and Web site. At the time, Editor in Chief Knight Kiplinger called McCormally "the watchdog of editorial quality, integrity and fairness in all that we do." In 2015, Kevin was named Chief Content Officer and Senior Vice President.