Consider converting your 401(k) or traditional IRA to a Roth IRA.
You first need to answer this question: How much tax will you have to pay to convert your existing plan to a Roth IRA? With this answer, you now know how much cash you need on hand to pay the extra taxes caused by the conversion to a Roth IRA.
Here are three reasons you should consider converting your retirement plan to a Roth IRA:
You can withdraw the monies you put into your Roth IRA (the contributions) at any time, both tax-free and penalty-free because you invested previously taxed money into the Roth account. (But if you make that conversion withdrawal within five years of the conversion, you pay a 10 percent penalty.) Each conversion has its own five-year period.
When you have your money in a Roth IRA, you pay no tax on qualified withdrawals (earnings), which are distributions taken after age 59 1/2, provided you’ve had your Roth IRA open for at least five years.
Unlike with the traditional IRA, you don’t have to receive the required minimum distributions from a Roth IRA when you reach age 72—or, to put this another way, you can keep your Roth IRA intact and earn money until you die. (After your death, the Roth passes to your beneficiary.)