Before you consider doing a Roth conversion, carefully consider the following issues first:
1. If you are 70 1/2 or older, RMD’s for the current tax year are required to withdrawn before a conversion takes place. If this not done in advance, it will be considered a failed conversion.
2. If an annuity is held in an IRA, the surrender value on the statement may not be the valued to be used for conversion purposes. You should contact the insurer to quote the conversion value (another reason to hate annuities….)
3. If you do a partial conversion and you have basis (due to some non deductible contributions), you must allocate the basis pro-rata. Thus, you cannot convert only high basis IRA without a tax. However, spouses are not combined for this test.
4. Make sure you have enough cash to pay the taxes you will incur instead of withdrawing funds from the retirement account itself.
If you have any questions about doing a Roth conversion, please feel free to contact us for more information or to get a detailed analysis on your financial scenario.