Converting IRA to Roth IRA is a financial decision that requires a careful assessment of your financial state and tax implications of the move. If you hold an existing Individual Retirement Account or IRA in short, it makes sense for you to convert the account to Roth in a number of cases.

Roth IRA is different from the traditional IRA in the sense that you have to pay taxes at the time of making contribution and not at the time you decide to make a withdrawal subject to fulfillment of certain conditions. Thus in a Roth IRA, you pay income tax as you make contribution to the account and not at the time of your retirement when you need the money most.

Whether or not to convert your traditional IRA to Roth requires careful analysis of your financial status and tax effects of the move. This is because the normal IRA contributions are tax exempt to certain extent and if you want to convert, you have to pay taxes on the corpus of your IRA.

The tax liability has to be met at the time of conversion itself and can not be deferred. Moreover it makes more sense that you have cash with you at the time of conversion rather than eating into the corpus of your IRA funds to pay taxes. If you do not have enough funds to pay the taxes, you can also opt for partial conversion of IRA to Roth IRA.

One more factor worth considering at the time of converting IRA to Roth IRA is that you can not avoid taxes simply by converting non tax deductible contributions to IRA and keeping your tax deductible contribution intact. As per rules, the entire IRA corpus is divided proportionately on deductible and non deductible at the time of conversion and tax liability is computed accordingly.

Converting IRA to Roth IRA is a big decision and you may consult a tax or financial expert to further gain guidance on the issue. This is because the implications are many and sometimes quite complex and may need to be assessed in light of the complicated procedures and set of rules framed by IRS to discourage unfair practices and rogue Roth schemes.

Your income levels also constitute a deciding factor as you can convert only in case your adjusted Gross Income is less than or equal to 100,000 US $ during the year of converting IRA.

If you try to claim deductions from your income which are disallowed later by IRS, you may have to shell out heavy penalties and costs for illegitimate conversion. So make a careful assessment. Converting IRA to Roth IRA has done wonders to the financial position of a large number of investors. Try to figure out where you stand.