Traditional vs. Roth: When to Convert
The traditional vs. Roth question comes down to whether you expect your tax rate to be higher now or higher in retirement. Traditional 401(k)/IRA: contributions are pre-tax (reduce current taxable income), grow tax-deferred, withdrawals in retirement are taxed as ordinary income. Best if you are in a higher bracket now than you expect to be in retirement. Roth 401(k)/IRA: contributions are after-tax (no current deduction), grow tax-free, qualified withdrawals in retirement are completely tax-free. Best if you expect to be in a higher bracket in retirement than today. Traditional-to-Roth conversion: a strategic move where you convert existing traditional IRA or 401(k) funds to a Roth IRA, paying income tax on the converted amount now. A Roth conversion makes economic sense when: your current-year income is unusually low (job change, business loss, retirement before Social Security begins), the conversion pushes you only to the top of your current bracket (not into the next), or you have a long time horizon where tax-free compounding will outweigh the current tax cost. Required Minimum Distributions (RMDs) begin at age 73 for traditional IRAs and 401(k)s — forcing taxable withdrawals. Roth IRAs have no RMDs during the owner's lifetime, making them ideal for legacy planning.