IRA - Roth Conversion Analysis Worksheet

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This calculator computes the difference between the following two options:

  • Option 1: Leaving the traditional IRA balance where it is.
  • Option 2: Rolling the traditional IRA balance into a Roth IRA.

Notes

  • Option 1 does not incur a tax liability in the year of conversion; Option 2 does.
  • In order to create a fair comparison, the money that would have gone to pay taxes is assumed to be invested in a taxable account for Option 1.
  • The distributions are annual and occur at the beginning of each year of retirement.

Example

If your client has an existing balance in her traditional IRA of $11,000 ($1,000 of which is from nondeductible contributions), and she is currently in a zero tax bracket because she is in the first year of starting a new business, what would be the difference in retirement distributions between Option 1 and Option 2?

Field Input
Amount to convert from Traditional IRA to Roth IRA $11,000
Nondeductible contributions in conversion $1,000
Year of Conversion Accumulation Years Distribution Years
Federal tax rate 0% 28% 28%
Number of years 10 20
Annual rate of return 8% 5%

In this example, the total after tax distributions from the traditional IRA (Option 1) is $21,369.12, and the after tax distributions from the Roth IRA (Option 2) is $29,290.44 (a difference of $7,921.32).

Notes

  • The Taxable investment account accumulation field computes the amount of accumulated net interest on the amount of tax due at rollover.
  • To evaluate the effect of a conversion from a regular to a Roth IRA without regard to any distributions, enter 1 year of distributions, a zero tax rate in the distribution years, and a zero annual rate of return for the distribution years.

Footnotes

  1. Tax on earnings is computed using taxpayer's combined federal and state tax rate.

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