A Roth IRA is a desirable retirement savings vehicle due to its tax–favored nature. Established in 1997 by law initiated by Senator William Roth, a Roth IRA represents a viable alternative to the traditional IRA, which was established in 1974.

One can directly fund a Roth IRA as well as create one by converting a traditional IRA into a Roth. Conversions trigger immediate taxation; however, factors such as lower income tax brackets, tax-free growth and withdrawal, and lower market valuations still could make conversions a smart strategy. Here are six key considerations when contemplating a conversion.

1  Your current personal income tax rate is low

If you are in a lower income tax rate bracket than what you expect to be in when you withdraw the funds, you have the opportunity to pay tax on the conversion at your lower rates.

Enhanced technique: Spread out the tax cost by converting smaller amounts over the next couple of years, which also may minimize pushing you into a higher tax bracket than if converted all in one year. However, you must wait five years to obtain the tax-free treatment of withdrawals from a converted Roth.

2  Your current account balance is low

You pay income tax on the value of the assets at the time of a conversion. There may be a time you find your account valuation reduced by market volatility. In this case, a conversion would reflect being opportunistic in paying tax at the lower value rather than doing so later after valuation recovery.

3  You want to provide a tax-free income source to your heirs

If you do not need income from an IRA during your lifetime, converting to a Roth IRA will offer continuous tax-deferred growth and tax-free withdrawals for your children or grandchildren. There are no required minimum distributions (RMDs) for original and converted Roth IRAs. However, there are RMDs for Inherited Roth IRAs and traditional IRAs: a) Inherited Roth IRAs, with five exceptions, must be paid out by the end of the tenth year following the death of the owner, and b) for traditional IRAs, RMDs begin upon attaining age 72.

4  You have enough cash to pay the tax on the conversion

For conversions, cash is king. You need to have enough cash outside the IRA to pay the tax on the conversion. For example, if you are under 59 ½, you do not want to take cash from an IRA account because there are penalties associated with withdrawals (with a few exceptions). Also, incurring capital gains tax to raise cash frequently makes the conversion too expensive.

5  You won’t change your mind

The ability to re-characterize or “reverse” your Roth conversion back to a traditional IRA is no longer allowed. Thus, the conversion should fit in with your long-term planning goals.

6  You make too much to fund a Roth directly

There is an income limitation on the ability to fund a Roth; however, there is not one for funding a traditional IRA. As a result, many high-income earners engage in a sophisticated technique referred to as a “backdoor Roth.” In short, this informal title refers to funding a traditional IRA and promptly converting to a Roth, thus avoiding the income limitation.