You’ve probably grown tired of my endless lectures about the wonderfulness of Roth IRAs. But wait. I have a new take. You can use the Roth conversion strategy to get some insurance against future tax rate increases that I think are almost inevitable. Roth conversions to the rescue! We’ll get to the Roth conversion game plan after first refreshing your memory about the two best-known Roth IRA advantages.
Unlike withdrawals from traditional IRAs and tax-favored retirement plans like SEPs and 401(k)s, qualified Roth IRA withdrawals are federal-income-tax-free and usually state-income-tax-free too. What counts as a qualified withdrawal? One that is taken after you, as the Roth account owner, have met both of the following requirements.