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With the market being as low as it is right now, it might be a good time to convert your traditional IRA to a Roth IRA.

I’m a huge fan of Roth IRAs

I love them because they allow my money to grow tax-FREE! As we’ve covered before, with a Roth IRA you invest your money after taxes are taken out. When you withdraw your money at retirement, you don’t pay any taxes. Essentially, you pay taxes today but escape them in the future.

So if you invest $3,000 per year from age 35 to 65, and your mutual funds average 12%, you will have $873,000 tax-FREE at age 65. Uncle Sam can’t touch it!

A traditional IRA works the opposite way. In other words, you invest your money before taxes are taken out. But, keep in mind you will pay taxes when you withdraw the money at retirement.

Is converting your traditional IRA a smart move for you?

That depends on your situation. If you’re 10 or more years away from retirement and expect to be in a higher tax bracket when that time comes, then switching over to a Roth IRA might be a good idea. If that’s you, a Roth will allow you to pay the least amount of taxes by keeping you in today’s tax bracket.

In order to make this decision, you should talk with your investment advisor. He or she will be able to tell you if converting is right for you.

Why now?

When you convert from a traditional to a Roth, you want to do it when prices are low—like in today’s market. By converting when prices are low, you won’t pay nearly as much in taxes. That means you’ll save money! And right now, all of us can afford to save extra money.

The Tip:

I’m not against you owning traditional IRAs. I simply think, depending on your personal situation, a Roth IRA might be better for you. If converting to a Roth makes sense for you, now is the time to do it—you’ll pay less in taxes. Just make sure you can afford to pay those taxes out of pocket. Don’t use the IRA money to pay the tax bill.

Dave Ramsey is a Best Selling Author of several books including the Total Money Makeover and hosts a National Radio Show ~ The Dave Ramsey Show.  You can find out more about Dave Ramsey at www.DaveRamsey.com.