Roth IRA FAQ | Adviser Investments


Card that says Roth IRA, laying on top of a stack of money
We spend a lot of time answering your questions about Roth IRAs—and it’s time well spent.

Roth IRAs have some impressive tax advantages that make them appealing. Ideally this refresher is helpful, but let’s talk if you have questions that we don’t address.

What’s the difference between a Roth IRA and a traditional IRA? The difference comes down to taxes. Traditional IRAs and 401(k) contributions are made pretax—which means you sidestep the tax man (for now), thus lowering your annual taxable income in the year you make contributions. Your earnings grow tax-free, but withdrawals (after age 59½) are taxed as ordinary income. With a Roth IRA, you contribute money that has already been taxed as income. Once invested, your earnings compound tax-free, and there is no tax on qualified withdrawals taken after age 59½.

What is a mega backdoor Roth conversion? A mega backdoor Roth conversion allows you to roll over post-tax funds from a traditional 401(k) into a Roth in certain situations (note that not all 401(k) plans allow mega backdoor conversions—we can help you determine if it’s permissible under your plan). If your retirement is many years down the road, the potential to compound your benefit for years (without having to pay taxes on withdrawals) could be advantageous—especially if you expect to be in a higher tax bracket in the future.

Should you convert from a traditional IRA to a Roth IRA? Here are some of the factors to consider when you’re deciding whether a Roth conversion makes sense for you.

  • What tax bracket will you be in? Generally, if you have a low-income year (due to early retirement or another reason), it may make sense to convert.
  • What’s your time frame? The longer you have before you need the money, the more sense it makes to convert to a Roth.
  • What kind of legacy do you wish to leave? Based on their tax treatment, Roth IRAs are better assets to pass along to your heirs than traditional IRAs.

There’s more, so click here for our handy Roth conversion checklist.

So, should you choose a Roth over a traditional IRA? It really depends on your situation.

If you are a client, please reach out and we’d be more than happy to help.

If you are not a client, click here to book a meeting with one of our expert financial advisors now!

This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.

© 2023 Adviser Investments, LLC. All Rights Reserved.