Converting a standard individual retirement account to a Roth IRA is a great way to avoid an unexpected huge tax hit to your nest egg and create tax-free income for future use. Unless it isn’t.
A Roth IRA’s biggest draw is that it allows investors to reap investment gains tax free; that is, contributions are made with after-tax money, and any gains are not subsequently shared with Uncle Sam later. Investors are allowed to convert a traditional IRA into a Roth, so long as they pay taxes - at current rates - on the balance being converted. That upfront tax payment is the catch.