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SHOULD I CONVERT MY IRA OR 401 ( K ) TO ROTH ?
Converting traditional IRAs and 401 ( k ) s to Roth is becoming a lot more popular these days for several reasons :
1 . Tax-Free Growth and Withdrawals - One of the primary advantages of a Roth IRA is that your investments grow tax-free , and qualified withdrawals during retirement are also tax-free . This can be a significant benefit for individuals who anticipate being in a higher tax bracket in retirement or expect future tax rates to rise .
2 . No Required Minimum Distributions ( RMDs ) - Unlike Traditional IRAs , Roth IRAs are not subject to required minimum distributions ( RMDs ) during the account holder ’ s lifetime . This allows retirees to keep their savings intact longer and maintain flexibility in managing their income streams .
3 . Estate Planning Advantages - Roth conversions are becoming a more valuable estate planning tool since the passage of the original SECURE Act in 2019 . The SECURE Act requires anybody who inherits a qualified retirement account from a non-spouse to take annual RMDs and fully distribute the account within 10 years . The most common scenario we see is children in their 50s and 60s inheriting IRAs from their parents , typically during their prime earning years where their tax rate is already high . Annual RMDs from an inherited Roth IRA are not taxable , eliminating the additional tax burden created from traditional IRAs .
4 . Diversified Tax Planning - Converting to a Roth IRA helps diversify your retirement savings across tax-deferred , taxable , and tax-free accounts . This diversification gives you greater control over your taxable income in retirement and enables strategic withdrawals to minimize taxes .
Why December is a Great Time for Roth Conversions
By December , most taxpayers have a clear picture of their income and deductions for the year . This clarity allows for more precise tax planning and helps determine how much to convert without pushing oneself into an undesirably high tax bracket . We can use this time to run simulations and calculate the potential tax impact of a Roth conversion . Remember that Roth conversions must be completed by December 31 to count for that tax year . Waiting until December ensures that the conversion aligns with your overall financial picture for the year , allowing you to make the most informed decision possible . However , Roth conversions can be done at any time of the year .
Roth conversions can be a powerful tool for reducing future tax burdens , enhancing retirement flexibility , and creating tax-free income . Although Roth conversions offer substantial benefits , they are not for everyone . The decision to convert depends on various factors , including : ( 1 ) your current and future tax brackets , ( 2 ) the availability of funds to pay the conversion taxes , and ( 3 ) your retirement and estate goals . Consulting with a financial advisor and / or tax professional is essential to ensure a Roth conversion aligns with your broader financial goals . By carefully considering the timing and extent of a Roth conversion , you can take a significant step toward a more secure financial future . If you ’ d like to learn more about how a Roth Conversion would work for you , please reach out to us here at Justabout Wealth Management .
Securities offered through Osaic Wealth , Inc . Member FINRA / SIPC . Investment Advisory services offered through Osaic Advisory Services , LLC ( Osaic Advisory ). Osaic Wealth and Osaic Advisory are separately owned and other entities and / or marketing names , products , or services referenced here are independent of Osaic Wealth and Osaic Advisory .
Brian M . Cartier , CFP ® Financial Advisor
Brian is a fully licensed Financial Advisor at Justabout Wealth Management . He earned his CERTIFIED FINANCIAL PLANNER™ in 2019 and specializes in the comprehensive financial planning process
Legal Disclosures : Securities offered through Triad Advisors , Member FINRA / SIPC . Advisory services offered through Triad Hybrid Brian Solutions @ Justaboutwealth LLC , a registered . com investment advisor . Justabout Wealth Management LLC and Triad Advisors , LLC are not affiliated .
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