On average, Americans are living longer than ever before. This reality has complicated the planning and saving stage of retirement as we struggle to secure enough income to cover our needs for the duration of our lifetime. One increasingly critical tool of financial planners for retirees is the use of Roth IRA conversions. A Roth conversion refers to taking all or part of the balance of a pre-tax traditional IRA and moving it into a Roth (after-tax) IRA.
The primary benefit of a Roth IRA over a traditional IRA is to enjoy tax-free withdrawals. With a traditional IRA, as well as with 401(k)s, 403(b)s, simple IRAs, and/or any other pre-tax qualified plan, taxes must be paid on any distributions from your investment and are treated as ordinary income. With a Roth IRA, within certain requirements, all withdrawals are tax-free—allowing for a more reliable and robust income stream during retirement.