A Roth conversion

Question: I have a very small traditional ira and would like to convert it to a Roth ira…. is there a way to do this without penalty? Elle, Birmingham, AL

Answer: You can convert a traditional IRA (funded with pretax dollars) into a Roth IRA (funded with aftertax dollars) without paying a penalty. However, you will owe income taxes on the amount you convert.

A reasonable rule of thumb is that it doesn’t pay to convert unless you have the savings elsewhere to pay the income tax bill.

To get a better understanding of conversion check-out the free calculator here.