Saving for retirement often requires the structure of long-term planning: strategies that will allow you to make the most of your savings while utilizing tax advantages. This kind of framework is taken care of by IRAs, or Individual Retirement Accounts. An IRA is a form of retirement plan that provides tax advantages for retirement savings, giving savers the economic benefits that will allow them to reach their saving goals efficiently. 

In each episode of the ACap ReCap, we go beyond the blog to answer your financial questions. Ara & Matt explain the key differences between a Roth IRA and Traditional IRA, and how they can benefit you.

1. Can I convert a portion of my IRA to a Roth IRA?
Most people assume that if you convert a Traditional IRA to a Roth IRA, you must convert the entire Traditional IRA balance. However, you can decide how much of your Traditional IRA you want to convert to a Roth IRA rather than converting the entire amount all at once. There are benefits to converting gradually because when you convert a Traditional IRA to a Roth IRA, you must report the converted value as income and pay tax. The option to gradually convert can be especially helpful if you have a large traditional IRA balance and you don't want to report the entire amount as income in one year, but would instead prefer to spread your tax liability over a few years. Just remember to complete IRS form 8606 when doing the conversion to accurately capture cost basis.

1. Can I reverse a Roth IRA contribution because my income was higher than I expected?
Yes. It is actually very common for people to make a Roth IRA contribution in the beginning of the year and realize later that they do not qualify for a Roth IRA. The solution is very easy and usually involves just filing out a form. Your custodian (the firm that holds your Roth IRA and sends you monthly statements) will have a form for you to complete. You can either reverse the Roth IRA contribution entirely or recharacterize the contribution as a non-deductible IRA. The non-deductible IRA option may be more appealing, especially if you want to do the backdoor Roth IRA.

1. What if I have a $1 million 401k, can I convert that to a Roth IRA?
This was a real question, but a hypothetical what-if scenario to understand the Roth IRA conversion limitations. The answer is yes, you can convert a $1 million 401k to a Roth IRA. In fact the IRS would love for you to convert a large 401k to a Roth IRA because like any conversion you would have to pay tax on the converted amount and that would be a revenue generator for the IRS. Once converted and held for 5 years, the benefits are the same as a regular Roth IRA - tax-free growth, ability to withdraw your money without tax or penalties, and of course no RMDs. So why would the IRS love such a thing? Because the IRS is shortsighted; they see the immediate tax revenue as a boon, not recognizing that they will never be paid on that money again.