Whether you currently invest in a Roth IRA or a traditional IRA, both are smart retirement saving and investing accounts that provide the potential for tax-deferred growth. As you may likely know, the main difference between the two types of accounts is how they are taxed.

Contributions to a traditional IRA are tax-deductible, meaning every dollar you contribute reduces your taxable income, up to the IRS annual limit. The money grows without being taxed until you start taking distributions in retirement. At that point, the money you withdraw is taxed as ordinary income. Roth IRAs are funded with after-tax dollars, so you can’t deduct your contributions. However, because you already paid taxes on the money when you put it into your account, you don’t have to pay taxes when you take the money out.

Some people who have a traditional IRA may want to consider converting it to a Roth IRA. Such a conversion could be an effective tool for reducing future tax liability — especially now. That’s because the tax reductions for individuals that came about with the Tax Cuts and Jobs Act of 2017 are set to expire at the end of 2025. Unless there is further congressional action as 2025 draws nearer, taxes will likely go back up in 2026. You will still be able to do a Roth conversion, but the taxes you pay when you move the money from a traditional IRA could be higher. In addition, the following are a couple of other situations where converting to a Roth IRA might be a good idea.

Anyone who feels they will be in a higher tax bracket in retirement.

One way this could happen is that when you reach age 72, the IRS requires you to start taking a percentage of your money out of retirement accounts, such as a traditional IRA, in which taxes were deferred. Those withdrawals, when added to your Social Security, pension and any other income you might have, could bump you into a higher tax bracket.

Anyone who wants to leave a tax-free legacy behind for their heirs.

Yes, you must pay the taxes on any amount moved from the traditional IRA to the Roth IRA. However, once the funds arrive safely in the Roth IRA, your savings can grow tax-free. Under the SECURE Act, any of your children or other heirs can defer any distributions from the inherited Roth IRA until year 10, allowing the money to continue tax-free growth potential that entire time. And your children/heirs won’t be taxed on the distributions when they do take them. Keep in mind: when converting traditional IRA money to a Roth IRA, you need to be aware of any potential upward bump to your marginal tax bracket for the current year. A financial planner or tax professional can help create a strategy for avoiding this.

While converting a traditional IRA to a Roth IRA might make good sense for many people, there are also reasons someone would likely not want to convert, including:

• If you will be in a lower tax bracket in future years
• If you don’t have enough cash or savings to pay the conversion tax
• If you might need the money within five years or less
• If your beneficiary will have a lower tax bracket than yours
• If you plan to leave your IRA to a charity.

Traditional IRA owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA.