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Now Everyone Can Convert to a Roth

Updated for Tax Year 2021 / October 16, 2021 06:35 AM


New rules for converting your traditional IRA to a Roth IRA began in 2010. Now everyone can convert to a Roth IRA.

Boost your retirement savings

If you use a traditional IRA to help build income for retirement, your contributions are most likely tax deductible. But you’ll have to pay income taxes when you withdraw the money. You don’t have any choice because you must start taking annual distributions after you reach age 72 that are included taxable income.

Contributions to a Roth IRA, in contrast, are made with after-tax dollars and are not tax deductible. You get years of tax-free growth just like a traditional IRA. But with the Roth IRA, there is generally no income tax on withdrawals as long as you’re older than age 59½ and have held the Roth IRA for at least five years. Additionally, you don’t have to take any distributions during your lifetime.

The tax-free nature of Roth withdrawals is very attractive. However, annual contributions to Roth IRAs are capped at $6,000 ($7,000 if you are age 50 or over) in 2021, so the big payoff from converting is when you convert a sizable existing traditional IRA to a Roth IRA. By converting you change otherwise taxable distributions to tax-free distributions. What’s the catch? You’ll have to pay tax now on the amount you convert.

As mentioned above, in 2010, the rules changed. The income cap on conversions was permanently repealed. No matter what your income, you can convert a traditional IRA to a Roth IRA.

Income limits on contributions remain in effect

While the income limits on Roth conversions were eliminated in 2010, there are maximum income limits for Roth IRA contributions. In 2021, married individuals filing jointly can contribute to a Roth IRA if your modified adjusted gross income (MAGI) is below $208,000. The benefit phases out between $198,000 and $208,000. If your income exceeds $208,000, you are not eligible to contribute any amount to a Roth IRA for 2021.

For single individuals, the 2021 Roth IRA phase-out limit is between $125,000 and $140,000, after which you may not contribute.

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