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What is a Roth Conversion?

February 16, 2021

What is a Roth Conversion?

This is one of the most commonly asked questions in the retirement savings world. A Roth account is another way that you can save for your retirement. But let's start by talking about your traditional saving methods.

IRAs and 401ks

Traditional IRAs and 401ks are popular savings vehicles where it is very easy to get money into these types of accounts. Oftentimes you have an employer plan, and it can come right from your paycheck, and you never even miss it, which is great. The problem with these plans is that all of that money is to be taxed. It goes in pre-tax, meaning you're not taxed when it goes in, and it grows without paying taxes on the growth. But when you get to retirement, that's when you're going to pay taxes on it.

Roth IRAs

This can become frustrating, which is where a Roth Conversion comes into play. A Roth account or a Roth IRA is the opposite of a traditional IRA or 401k, meaning Roth money is after-tax. Because that tax is paid upfront, you never have to pay tax on it again. So, converting your money from one of these traditional accounts into a Roth account while taxes are more favorable is a very good idea.

The Big Takeaway

Having some money in both buckets, traditional money and Roth money, is generally a good idea.

Learn More About Roth IRAs

There is so much more that goes into a Roth IRA, so if you are interested in learning more, reach out to our team today!

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