SHOULD YOU CONVERT TO A ROTH IRA?
Practical guidance in deciding whether a Roth IRA conversion from another retirement account makes sense for you.
Roth IRA accounts have become very popular these days and with good reason. They offer tax free investment growth and income. What’s not to like? But many have jumped on the Roth conversion band wagon without really looking to see if they will benefit as much as they believe.
A Roth IRA conversion is where a taxpayer moves money from their pre-tax retirement accounts such as a 401k, 403b, traditional IRA or rollover IRA into a qualified Roth IRA. Typically this results in the taxpayer recognizing income on the amount transferred from the pre-tax retirement account to the Roth. So there are consequences to their action and a primary motivation for “looking before you leap!”
The decision of whether to make a Roth conversion is a complicated one. Furthermore, each and every client’s financial and personal situations are different. They have different needs, different objectives and very different timelines. Someone who is 68 with a $20 million estate is significantly different from a 55 year old who just retired or a widow facing a change in filing status and higher tax rates.
The analysis looks closely at your objectives, timeline, tax bracket, net worth and financial needs for everyday living just to name a few. Here are a few of the questions we pose:
We then consider the eleven reasons to convert to a Roth IRA. We are determining the motivation driving the decision whether to convert or hold back. Keep in mind that almost all Roth conversions are “partial” conversions. Typically, partial conversions provide a better quantitative outcome versus converting it all in one event.
Keep the Roth IRA basics in mind. These are reasons why Roth IRAs are so attractive and here are just a select few:
To summarize, Roth IRAs are terrific ways to save and invest while minimizing your tax liability over the long-term. Converting from a traditional IRA to a Roth is not a “no-brainer” decision. Carefully consider the short and long-term impacts before you take action.
Our firm provides Roth IRA conversion analysis services. If you are interested in letting us provide advice and guidance on your path to making a Roth conversion decision, please contact us for a preliminary interview.