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An IRA conversion, usually a Roth IRA conversion, is when you move money from a traditional IRA into a Roth IRA so you pay taxes now instead of later. In a traditional IRA, you often get a tax break when you put money in, but you must pay income tax when you take it out in retirement. In a Roth IRA, you put in money that has already been taxed, and then, if you follow the rules, it can grow and be withdrawn tax free in retirement.
When you do a conversion, the amount you move is added to your income for that year, and you owe income tax on it, but usually no 10% early withdrawal penalty just for converting. People often choose conversions if they expect to be in a higher tax bracket later, want tax-free income in retirement, or like that Roth IRAs do not require minimum withdrawals during their lifetime. This can also help leave tax-free money to heirs.
An appraisal for an IRA conversion is usually necessary when you are converting assets that do not have an easy, obvious market price, such as real estate, private business interests, or certain investments in a self-directed IRA. In these cases, the IRS wants to know the fair market value of what you are converting, because the tax you owe on a Roth IRA conversion is based on that value on the day of conversion.
A professional, independent appraiser estimates what a willing buyer would pay a willing seller for that asset. This protects you in two ways: it helps you avoid overpaying taxes by using a value that is too high, and it also helps you avoid IRS problems from using a value that is too low. Having a qualified appraisal creates documentation you can rely on if your return is ever questioned.




