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30 - Planning Controllables Part 2 - Potential of Roth Conversions

30 - Planning Controllables Part 2 - Potential of Roth Conversions

March 31, 2023

Ideal For: Farsighted Investors Anticipating Higher Future Tax Rates

Decoding The Strategy: A Roth conversion is a tactical move where you transform Traditional IRA money into a Roth IRA. This move requires you to pay current income tax on the conversion amount, ideally funded from another source, not the IRA itself.

Who Stands To Gain? If you have Traditional IRA funds and anticipate your future tax rates to be higher than the current year's, coupled with no plans of withdrawing from the Roth IRA for another 10-15 years, this strategy could be particularly beneficial.

Why Should You Care? A Roth IRA conversion can potentially save you money on taxes over the life of the account, provided your future tax rates do, in fact, exceed today's tax rates. Moreover, withdrawals from the Roth IRA will be tax-free if they occur later of, five years post-conversion, or post age 59 ½.

Your Next Move: To initiate a Roth conversion, begin by conversing with your brokerage/investment firm about their specific procedures. It's important to consult with a tax professional or financial advisor to understand all the tax implications and to determine if this strategy aligns with your overall financial plan. Remember, in the long game of financial planning, strategic moves today can yield substantial dividends tomorrow.