While there are many reasons that it may be in your best interest to pay tax and convert funds from a traditional IRA to a Roth IRA, there are a few situations that you might want to keep in mind as you consider converting.
I covered Three Reasons You May Not Want to Convert to a Roth IRA in an earlier article, and here we’ll be talking about another – the probability of paying medical expenses from your traditional IRA.
Under current tax law, you are allowed to deduct medical expenses to the extent that the expenses exceed 7.5% of your Adjusted Gross Income (AGI). In effect, if you utilized IRA distributions to pay for these medical expenses, everything above 7.5% of your AGI can be tax free after deduction. This is much better than paying up to 35% on a Roth conversion and then using those funds later at no tax. Of course, if your medical expenses are something less than 7.5% of your AGI, or a relatively insignificant amount over that level, it might not make as much sense.
Since many of us can expect to pay a considerable amount for future medical expenses – whether for doctors and hospitals, or for nursing home costs, or even for in-home nursing care – it might make good sense to maintain a balance in a traditional IRA rather than converting all of it to a Roth IRA.
Just another item to consider as you think about converting money from your traditional IRA to a Roth IRA.