If you are considering or even have considered making conversions from your IRA’s/401(k)’s to a Roth IRA, paying some tax, and benefiting from 15, 20, or more years of tax-free growth, you are smart to explore it. They often are a great move, and I often hear many people quickly dismiss them. Here are some tips on important items to consider when doing so.
Age/Health: Often if you are aged seventy-five or older there isn’t a lot of time for you to recover the taxes paid. If you are in great health and have longevity in your family Roth conversions may still make a lot of sense.
Tax: Sage advice that when doing conversions, it is not really all about your tax bracket, it is about what percentage that tax is to your total investments. For example, if you convert $50,000 and the tax due is $12,000, you have $700,000 of investable assets, you are only paying 1.6% out of your portfolio to tax. This is a percentage return your overall portfolio may make up in a market year.
Future Use of Your Roth Assets: There is a real possibility you will need dollars later in your life for assisted living or nursing care – God willing. Converting “all” of your IRA/Traditional 401(k) dollars may not make sense, as dollars withdrawn from an IRA for medical use, also may be a health care expense which is deductible on your tax return. Therefore, any dollars taken from an IRA which is normally 100% taxable to you, when spent on your health care may be tax deductible and therefore come out of your IRA effectively tax-free. So why would you pay tax on converting all your IRA assets when some may come out near tax-free? This is custom and unique to every individual and couple out there, so it is a consideration. Be careful considering if it will be a deductible health care expense, when used for long-term care use. Tax laws may also change as well.
When doing Roth Conversions there are great tools and software for properly doing them – and knowing if they may work for you. If someone quickly dismisses them, you may want to take another look. It takes a good bit of work to figure it out, but often there are hundreds of thousands of dollars that could be to your benefit.
Robert Jeter, CFP®, CRPC®, Vice-President and Financial Advisor at InFocus Financial Advisors, Inc. retireinfocus.com 31454 Winterplace Parkway, Salisbury, MD 21804, 410-677-4848 for questions or comments.
Investment Advisor Representative offering securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
To learn more about Roth Conversions, register for our class at the Lewes Public Library on June 19th from 10AM – 11AM.
Space is limited! Registration to attend is done online at https://retireinfocus.com/educational-classes/ or by calling (410-677-4848).
For more information on this class contact:
Ryane E. Porter, Client Experience Associate
410-677-4848
