Roth Conversion

Should I Convert My Traditional IRA to a Roth IRA?

• Is your AGI (Adjusted Gross Income) for the year in which you are planning to convert, less than or equal to $100,000? If not, federal law prohibits you from converting to a Roth IRA*.


• If married, will you file a joint federal income tax return with your spouse for the year of the conversion? If not, you are not eligible to convert to a Roth IRA in that year.


• Do you have funds available outside of the Traditional IRA to pay the federal income tax due as a result of the conversion? If not, the additional 10% premature distribution penalty tax may apply to the amount withdrawn from your Traditional IRA to pay the tax.


• Do you plan to leave the converted Traditional IRA funds in the Roth IRA for at least 5 years? If not, funds withdrawn within 5 years, may be subject to the additional 10% premature distribution penalty.


• Will your federal income tax bracket be the same or higher after retirement? For most, this is only a guess, but a "significantly lower" tax bracket after retirement would offset some of the benefits of converting to a Roth IRA.


• Will your tax bracket remain the same for this year as a result of the conversion? Since funds converted from a Traditional IRA to a Roth IRA will be taxable, the conversion may place you in a higher federal income tax bracket for this year.

*In 2010, the $100,000 AGI limit will be eliminated. In addition, if you convert in 2010, the tax liability can be spread over 2011 and 2012.

If you can answer "yes" to each of these questions, then converting your Traditional IRA to a Roth IRA may make sense. Whether you choose to convert or not, it's important to understand that future tax laws are likely to change. Such changes may impact the actual results of your decision in a positive or negative way. If you did answer "yes" to all of the questions, then enter your information and press calculate for an instant analysis of your situation.

Here is a quick way to get an estimate. Enter data without commas.

Conversion Information

Current Age:   Retirement Age:   Rollover Amount:   Assumed Rate of Return:   % Current Tax Rate:   10 15 25 28 33 35 % Tax Rate at Retirement:   10 15 25 28 33 35 %

Adobe Acrobat Reader is required to view several links listed throughout this site. To download your free copy, click on the Get Adobe Reader logo to the left.

PLEASE NOTE: State Farm is providing this software "as is" without any warranty of any kind, either expressed or implied, including without limitation the implied warranties of merchantability and fitness for a particular purpose. Any risk arising out of use or performance of this software remains entirely with the user. Under no circumstances will State Farm be liable for any damages whatsoever arising out of the use or performance of this software.

State Farm does not provide tax or legal advice. You should contact your tax or legal advisor for advice regarding your situation.