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Definitions

Amount to convert

Amount to convert from a Traditional IRA account to a Roth IRA. It is important to note that some high income households do not qualify for a Roth IRA conversion. Currently, anyone with an adjusted gross income over $100,000 cannot make a Roth IRA conversion. For the purposes of this calculator, we assume that your income does not limit your ability to convert to a Roth IRA.

We also assume that you are paying any taxes owed with funds that you have available outside of the IRA you are converting. If you are under 59 1/2, the IRS treats any money not directly transferred to the new Roth IRA as an early withdrawal - even if that money is used to pay the tax bill caused by the conversion. If you do not have adequate funds outside of your IRA to pay the tax liability on a conversion, you probably should not consider converting your Traditional IRA to a Roth IRA.

Non-deductible contributions

The amount contributed to the Traditional IRA you are converting that was an after tax contribution (and for which you received no tax deduction on your tax return for the year it was made).

Current tax rate

Current marginal income tax rate that will apply to conversion amount. Please note that the marginal tax rate for your conversion may be higher than your current marginal tax rate if the conversion moves your AGI into a higher income tax bracket.

Tax rate at retirement

Expected marginal income tax rate at retirement.

Investment tax rate

Expected marginal tax rate (base this on expected capital gains rate) for investments.

Current age

Current age.

Age at retirement

Desired age at retirement.

Rate of return

The annual rate of return for your IRA. This calculator assumes that your return is compounded annually. The actual rate of return is largely dependent on the type of investments you select. From January 1970 to December 2008, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 9.7% (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, from June 1982 through June 1983. The lowest 12-month return was -39%, which happened twice, once from September 1973 to September 1974 and again from November 2007 to November 2008. Savings accounts at a bank may pay as little as 1% or less but carry significantly lower risk of loss of principal balances.

It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.

What is the advantage of converting to a Roth IRA?

This Financial Calculator requires SUN's Java™ Plug-in. If you see this message you will need to download SUN's Java™ Plug-in. This can be done automatically by clicking the yellow bar at the top of your browser and choosing “Install ActiveX Control”.

Definitions