By Steve Dinnen There has been a surge in conversions of IRAs to Roth IRAs. It’s an especially attractive option here in Iowa now that the state has eliminated its taxes on withdrawals from those accounts — but it’s not a slam dunk. Roth conversions are a way to move money, specifically invest ment income, from the taxable ledger to the non-taxable ledger. Other factors in their favor: A regular Roth can be funded only with earned income. If you’ve retired you’ll have no such income, but a conversion has no such stipulation. The maximum you can contribute to a Roth yearly is $7,500 (or $8,600 if you’re older than 50), but a conversion allows you to haul as much money out of your IRA as you wish. A Roth IRA has no annual required minimum distribution (RMD). And of course, whatever distribution you do take from a Roth is tax-free. Brittany Heard, lead adviser at West Des Moines-based financial advisers Foster Group, said her firm often recommends that clients consider Roth conversions, but only if they make sense. Money taken from an IRA to fund a Roth is taxed as ordinary income (not at the rate for capital gains), so that could push your taxable income into a higher bracket. You can rise from 22%, for instance, to 24% once your taxable income crosses above $211,400. Also, Heard notes that the higher your income, the bigger your additional monthly premium will be for Part B Medicare coverage. This added premium can be as much as $487. Part D premiums can rise as much as $91 monthly. Crunching the numbers, a $100,000 withdrawal from an IRA for someone in the 24% federal tax bracket will create a tax bill of $24,000. As noted, Iowa no longer taxes withdrawals from retirement accounts, so that helps. But you’ll need to consider that you’ll now have $86,000 working for you in that Roth. You can pay the tax bill with other money, but you’ll still have less. Converting to a Roth before age 59½ counts as an early withdrawal from your IRA, so penalties will apply. Also, you typically need to have that Roth IRA open for five years to make tax-free withdrawals. And if you’re extremely charitable, said Heard, a Roth is probably not a good idea. The bottom line: Before you convert anything, your wealth adviser should look over the proposal to make sure it works in your favor. ...read more read less