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Should I use the back door Roth IRA conversion to convert my traditional IRA to a Roth IRA?

I have a traditional IRA valued at $40,000 that was established 10 years ago entirely from an employee stock ownership plan (ESOP) plan from a previous employer. There were no contributions by me. Should I use the back door Roth IRA conversion to convert it to a Roth IRA? I do not have any other existing IRAs, just a 401(k) plan from my current employer.

Financial Planning, 401(k), IRAs
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March 2019

The answer to your question has everything to do with taxes. If you decide to do the conversion in one fell swoop, you'll pay taxes on the entire amount in one year. This could push you into a higher tax bracket, thus penalizing you with more taxes.

If you are comfortable with this and would rather get it done with all at once, go for it.

Otherwise, you can convert portions over several years, depending on your income and what tax bracket you are in for a given year. If it were me, I'd do a conversion in a year when my income was lower, or convert an amount that would keep me in my current tax bracket and wouldn't push me into a higher one.

Good luck! I hope this helps!

March 2019
March 2019