One rule does hold for everyone, he says. People should never raid tax-protected IRAs to pay the tax required to do a conversion. Those funds built up over time are the hardest to replace. "If you have to pay the tax liability from nontaxable funds, you lose 100 percent of the time," Lanter says.
There is also widespread agreement that younger people are good candidates for a Roth as they start their careers. They can forego pre-tax contributions afforded by the traditional IRA while their tax burden is relatively light. As they do so, they will be investing in assets that will grow tax-free for all of their working years and they can keep 100 percent of the funds when they withdraw them in retirement.
"For them, it's really a no-brainer," says accountant and retirement adviser Ed Slott, of Ed Slott and Co.
The Roth plans also are not limited by minimum withdrawal requirements, adding flexibility that traditional IRAs lack. Some financial advisers see this as a way to protect income that people wish to pass along to heirs.
Long-term Roth advantage versus short-term cost. The choice of a Roth or a traditional IRA could also dictate the way you invest, says Slott. "Once you are in a Roth, you might tend to make more aggressive investments that accumulate capital gains that are all tax-free without required withdrawals, and that changes your risk profile."
To be sure, the Roth adds a level of complexity to financial planning at a time when people are already confused by retirement options. AARP's Setzfand says that in some cases, a financial adviser will be needed to sort things out. Lanter agrees that some of the strategies for creating a diversified income source require a specialist view owing to the new batch of related rules and options. People with the cash to set up a Roth "usually have the money to do that," says Setzfand. But individuals can decide their own strategy for putting funds in one or both, she adds.
"I love the diversity this [expanded Roth] offers," says Setzfand. "You can set it up so you have a mix of income in retirement that is taxable and tax-free, and some that is not subject to required withdrawal rules. Just like with investments, it's always good to diversify."