What is a Roth IRA conversion and how does it work?

A Roth IRA conversion is a process where funds from a Traditional IRA or a pre-tax retirement account are moved into a Roth IRA. This conversion allows individuals to reap the benefits of tax-free growth and tax-free withdrawals during retirement. When converting, the pre-tax funds are considered as taxable income in the year of the conversion. However, once the funds are in the Roth IRA, they can grow tax-free indefinitely. Furthermore, unlike Traditional IRAs, Roth IRAs do not have required minimum distributions (RMDs) during the account holder's lifetime, making them an attractive option for those seeking flexibility in retirement. It is important to note that there may be limitations and tax implications associated with Roth IRA conversions, so seeking guidance from a financial advisor or tax professional is advisable before making any decisions.