The deadline for the conversion is December 31 to apply for the current tax year.
Why Convert to a Roth IRA?
A Roth IRA comes with benefits that can make the conversion worthwhile. For example, you contribute after-tax money to a Roth IRA so you can withdraw it freely without paying taxes in retirement. Paying taxes now instead of later can be beneficial if you find yourself in a lower tax bracket than you expect to be in the future.
What is the Deadline for Converting to a Roth IRA?
The deadline for converting to a Roth IRA is December 31. If you convert anytime between January 1 and December 31, 2021, for instance, that conversion will count for the 2021 tax year.
Backdoor Roth IRA Conversions
If your income exceeds the limits set by the IRS for Roth IRA accounts ($144,000 for single filers and $214,000 for married couples filing jointly), it is still possible to contribute by converting or rolling over your money from a traditional Roth IRA or another retirement account.
Note on Withdrawing Your Conversions
Because you contribute after-tax money to a Roth IRA, you can withdraw it without paying taxes at any time after age 59 and a half. However, in the case of a Roth IRA conversion, you must wait five years before you can withdraw your contributions, regardless of age. If you try to withdraw your money before this time, you will be subject to a 10% penalty.
Conclusion
Backdoor conversions to Roth IRAs are legal ways to circumvent the income limits for Roth IRA accounts and enjoy the benefits of a Roth IRA. While you will need to pay taxes on the converted amount now, you can enjoy tax-free distributions in retirement.
Frequently Asked Questions (FAQs)
How do you do a Roth IRA conversion? There are three main ways to do a Roth IRA conversion: converting from a traditional retirement account or another retirement account to a Roth IRA. You have 60 days to complete the conversion. Transfer funds from your traditional account at one financial institution to a Roth account at another financial institution. Transfer funds from one account to another within the same financial institution.
When is it appropriate to convert to a Roth IRA? It may be appropriate to convert to a Roth IRA if you expect to save money on taxes by converting your pre-tax savings now instead of waiting until retirement. This can be especially advantageous if you are in a lower tax bracket now than you expect to be in the future. Converting to a Roth IRA may also be beneficial if you want the option to eliminate the required minimum distributions in retirement or to withdraw contributions without penalties after five years.
How do you pay taxes on a Roth IRA conversion? You will pay taxes upfront on a Roth IRA conversion so that your after-tax money can grow within the account. To manage your tax liability, it may be beneficial to convert smaller amounts over several years rather than a large amount at once.
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Source: https://www.thebalancemoney.com/roth-ira-conversion-deadline-5270854
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