Roth Conversion
InvestingMoving money from a Traditional IRA or 401(k) to a Roth IRA, paying taxes now for tax-free withdrawals later.
Example
Example: You have $50,000 in a Traditional IRA and are in the 12% bracket this year due to a career transition. Converting $50,000 to Roth costs $6,000 in taxes now (12% × $50,000). If that $50,000 grows to $200,000 over 20 years in the Roth, every dollar comes out tax-free. Without converting, withdrawing $200,000 at a 22% bracket would cost $44,000 in taxes. Net savings from converting: $38,000.