Roth Conversion Benefits
This calculator is designed to help to determine the possible benefits of converting a traditional IRA to a Roth IRA. It compares the after-tax value of a traditional IRA (Scenario 1) to the value of converting it to a Roth IRA (Scenario 2).
: Assumes a Traditional IRA is maintained with enough outside money (in a brokerage account) to pay the tax attributable to the conversion to the Roth IRA. This scenario takes required minimum distributions into consideration. These distributions are deposited (after-tax) into the brokerage account.
: Assumes the Traditional IRA is converted to a Roth IRA and the taxes are paid from the outside funds.
All amounts other than the Traditional IRA balances are after-tax. The column titled, "Yr End: 3 Accnt Total" includes the after-tax value of the Traditional IRA plus the required distributions plus the value of the outside funds held in the brokerage account.
Traditional IRA (conversion amount)
This amount is the amount of funds in the Traditional IRA that is being converted.
In many cases, basis will equal zero. However, there could be basis from non-deductible IRA contributions or from basis occuring in a qualified plan that was rolled over to an IRA.
Basis in an IRA will result in lower tax upon conversion.
Basis included in Traditional IRA (amount above)
The basis will reduce the required tax due from the conversion.
1st Yr Tax Rate (applies to conversion amount)
This tax rate is thetax rate that will be applied to the funds converted to the Roth IRA. It should be the marginal tax rate.
Future Ordinary Income Tax Rate
The future tax rate is applied to required distributions (ordinary income) and to determine the IRA After-Tax value (ordinary income).
Investment Tax Rate (dividends & capital gains)
The investment tax rate is the rate that is applied to earnings on the value of the required distributions and to earnings in the brokerage account.
Scenario 1: Traditional IRA and Brokerage Account
Traditional IRA (pre-tax)
Roth + (-)
Yr End Total
Outside Taxable Acct
Yr End: 3 Accnt Total
Yr End Tot