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This week’s Slott Report Mailbag looks at converting a traditional IRA to a Roth IRA, as well as making Roth contributions in the year of retirement.  As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure.

Question: I have watched a few videos of Ed Slott speaking and he seems to be a big proponent of converting traditional IRAs into ROTH IRAs. Is this a general recommendation or does he make that decision case by case?

Answer: 

Conversion can be a great strategy and all taxpayers with IRA or employer plan funds are eligible. There is no downside for anyone to at least consider the benefits of converting and whether it is a good fit for them. However, the decision to convert must done on a case by case basis. There is no one right answer. While many may benefit from converting it is not for everyone.

Factors generally in favor of conversion include: being in lower tax bracket now than at retirement, being younger, and having funds outside the IRA to pay the taxes.

Factors weighing against conversion include: an immediate need for the money, being in a higher tax bracket now than at retirement, and no funds outside of the IRA to pay the taxes.

These are only a few of the considerations that must be taken into account. Each situation is different. You may well benefit from a Roth conversion, but you will want to take the factors specific to you into account. A knowledgeable financial or tax advisor can help steer you in the right direction.

Question:

Am I allowed to make Roth IRA contributions in the year I retire as long as I had earned income in the first part of the year?

Answer:

You can still make a Roth IRA contribution in the year you retire, even if the contribution is made later in the year when you are no longer working. You or your spouse just need to have taxable compensation during the year to fund the contribution. If you are age 50 or over this year, you can contribute up to $6,500. Your modified adjusted gross income (MAGI) must be under certain limits to be eligible to contribute to a Roth IRA. For 2017, your ability to contribute will begin to phase out when your MAGI reaches $186,000 if you are married or $118,000 if you are single.