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Since income caps on Roth conversions were removed in 2010, anyone can convert a traditional IRA to a Roth IRA. There are many reasons one may want to do this, but it’s important to know what tax implications are involved in the short and long-term.

To convert or not to convert, that is the question

One reason for converting your IRA is that future withdrawals from the converted IRA will not incur federal income tax. This is especially advantageous if you expect to be in a higher tax bracket in the future. Converting to a Roth IRA is one way to curb some of those taxes.

You’re also not required to begin minimum distribution until the age of 70½, meaning you can leave the amount invested there longer and grow your savings that much more.

Furthermore, you can leave the account for your heirs. In this instance, they will not have to pay federal income tax on withdrawals from the Roth IRA as long as the account has been open for 5 years. It’s another way to ensure future stability for your loved ones.

Tax considerations

Converting your traditional IRA to a Roth IRA has the potential to result in a very large tax bill. This is because you incur immediate income taxes on the entire amount you convert. That means you’ll have to take into account how you will pay for those taxes.

Some choose to pay the tax by withdrawing from the IRA. While possible, we advise against it. Withdrawing from your IRA means you’re taking away from your retirement savings. This is particularly tough on an IRA because you can only contribute a small amount each year, meaning it can take a long time to build your savings back up. Furthermore, if you’re below 59½ years old, you’ll also incur a 10% penalty.

It’s important to consider your personal tax situation and consulting with a tax advisor for the best approach is advisable.

Get in touch with a Voya professional if you’d like to convert your traditional IRA to a Voya Roth IRA at www.voya.com/contact-us/find-a-pro.

This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice.  All investments are subject to risk.  We recommend that you consult an independent legal or financial advisor for specific advice about your individual situation.

The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. 

Securities offered through Voya Financial Advisors, Inc. member SIPC. 

Neither Voya nor its affiliated companies or representatives provide tax or legal advice. Please consult with your tax and legal advisors regarding your individual situation. 

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