Dan Celia

Financial Issues

November 2017 – Q: Three years from retirement, we're trying to determine whether we should go from our Traditional IRA to a Roth IRA.

A: A Roth IRA is a great vehicle for saving taxes. All that you save and invest grows tax-free. When you remove some of the money for income, you will not have to pay tax on any of it.

However, if you were changing to a Roth from a Traditional, you need to be aware of a few things. If you expect to begin using the money within the next 5 to 10 years, there may not be an advantage. Remember that when you change to a Roth, all of the taxes are due immediately on that money. It would take years of tax-free growth to make up for the money that you’ve already paid in taxes.

A better alternative may be to gradually, little by little, draw some of the money out of the Traditional IRA and move it into a Roth while you are still working. In this way, the tax burden will not be as bad.

Finally, a Roth can have a long-term positive impact because you will never be required to take any money out. Furthermore, your heirs will never have to pay taxes on the inheritance.

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Dan Celia has been in financial management for more than 30 years. He works closely with AFA Foundation and can be heard six days a week on AFR Talk (afr.net).

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Email: dan@financialissues.org
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