BY STEVE DINNEN
The Roth IRA conversion has gained ground this year―a lot. Roth IRA provider Fidelity, according to Bloomberg News, has reported a 76% surge in the number of conversions from traditional IRAs to Roths in the first quarter compared with the same period of 2019.
What’s behind this? Several items are at play, including the stock market rout of March. That depressed the value of investments held in traditional IRAs, so there would be less money to pull from one of those accounts (and less owed in income taxes to pay for the conversion).
Also, sentiment in some circles is that income tax rates are going to rise. That will affect IRAs as money is withdrawn from them, so might it be wiser to take a tax hit now, on a conversion, and avoid higher taxes that could be due later? Once that money is tucked into a Roth, there is no more tax liability on any withdrawals.
Plus, you can pour more money into a Roth conversion than a straight-out Roth, which has a yearly contribution cap. For 2020, the IRS has lifted income limits for contributions. It also has extended the cutoff date for contributions for 2019 to July 15. So you still have a month to make that move.
