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Roth IRA Conversion Calculator

 

In 1997, the Roth IRA was introduced. This new IRA allowed for contributions to be made on an after tax basis and all gains (or growth) to be distributed completely tax-free. Since then, people with incomes under $100,000 have had the option to convert all or a portion of their existing Traditional IRAs to Roth IRAs. Beginning in 2008, participants with funds in eligible employer sponsored plans could also roll those funds directly over to a Roth IRA in a qualified rollover if their income did not exceed the $100,000 threshold. Starting in 2010, all IRA owners and participants in eligible employer sponsored plans, regardless of income level, will be eligible to convert their Traditional IRA and pre-tax funds in an employer-sponsored plan (401(a)/(k), 403(b) and governmental 457(b)) to a Roth IRA. Is this a good option for you? A conversion has both advantages and disadvantages that should be carefully considered before you make a decision. This calculator compares two alternatives with equal out of pocket costs to estimate the change in total net-worth, at retirement, if you convert your Traditional IRA into a Roth IRA.

Tax Rate at Retirement

Expected marginal income tax rate at retirement.

Investment tax rate

Expected marginal tax rate (base this on expected capital gains rate) for investments. This calculator assumes that you invest the amount that you would have had to pay in taxes in a taxable investment account. The investment tax rate is used for calculating the annual return on these taxable investments. For many, this will be the same as their income tax rate. If you expect your non-IRA investments to be primarily from long-term capital gains or divdends.

Use 2010 Option to delay tax payments

Check this box to use the 2010 option to delay your Roth Conversion tax payments to 2011 and 2012. This option is only available for conversions that take place in 2010. When this box is checked, no taxes are due for the conversion in 2010. In both 2011 and 2012, one half of your converted amount will be added to your income and subject to income tax. Please note that under current law, existing tax rates are set to expire at the end of 2010 and, absent further congressional action, will revert back to the higher rates in place in 2001 beginning in 2011.