Are you considering a Roth individual retirement account (IRA) conversion? The experts at Extreme Investor Network believe that you could save on taxes by taking advantage of a limited window of opportunity. Roth conversions involve moving pretax or nondeductible IRA funds to a Roth IRA, which allows for tax-free growth in the future. The trade-off is that you will owe upfront taxes on the converted balance.
One key factor to consider when deciding to convert a pretax balance is timing. According to JoAnn May, a certified financial planner and CPA at Forest Asset Management, the ideal time for Roth conversions is early in retirement when your income is lower. This period, after you stop working but before you start taking required withdrawals from retirement accounts, is known as “the sweet spot” for Roth conversions.
Furthermore, with lower income tax brackets available until 2025, it’s a good idea for investors to take advantage of these rates before they potentially change. By converting to a Roth IRA, you will owe regular income taxes on the converted amount, based on that year’s taxable income bracket. This strategic move can help reduce your taxable retirement balance subject to future required minimum distributions (RMDs) since Roth accounts are not subject to RMDs.
Moreover, a Roth conversion could also benefit your heirs by eliminating taxes on inherited accounts. With the “10-year rule” requiring most adult children to deplete inherited accounts within 10 years, converting to a Roth IRA can help avoid tax issues during peak earning years.
However, it’s essential to be mindful of how Roth conversions can affect other aspects of your finances. For instance, since Roth conversions can increase income, they may impact income-related monthly adjustment amounts (IRMAA) for Medicare Part B and Part D premiums. Your IRMAA is determined by your modified adjusted gross income (MAGI), which includes your adjusted gross income plus tax-exempt interest with a two-year lookback period.
As experts at Extreme Investor Network, we understand the importance of maximizing your financial opportunities while minimizing taxes. By considering all factors, including timing, tax implications, and Medicare premiums, you can make informed decisions about Roth conversions that align with your long-term financial goals. Stay tuned for more exclusive insights and expert advice on personal finance at Extreme Investor Network!
