Roth IRA Conversion
Moving money from a traditional IRA to a Roth IRA is a "taxable event." This means that all of the money moving from your traditional IRA to the Roth will be included in your taxable income. (Exception: Many high-income people have made non-deductible contributions to traditional IRAs. If there was no tax deduction when the contribution was made, then only the growth is taxed when you move the money out.)
So the big question is whether it's a good idea to take a tax hit now, move the money into a Roth, and potentially escape tax on all future growth. This is an attractive opportunity if (1) you have many years left before you will withdraw the funds, (2) if your income is unusually low this year, or (3) it is important to leave the funds to your heirs tax-free.
A few things to consider:
Also, here is a popular long-term tax-saving move: If you are not eligible for a tax deduction for a contribution to a traditional IRA, go ahead and make the contribution any way. Then, roll the funds from the traditional IRA into a Roth IRA. This gets around the income level restriction on contributing to a Roth directly, and gives you tax-free (not tax-deferred) growth for the assets.
There are other factors and exceptions which also must be considered. I recommend that you not make any financial moves involving significant amounts of money until you have run the details past an experienced CPA tax accountant.
Bess Kane, CPA