In This video, Troy Sharpe, CFP® discusses the Roth Conversion Strategy, was provided directly to clients of Oak Harvest Financial Group and intended only for their use. It is presented here for informational purposes only. The tax strategies discussed may not be right for your personal situation and this video should not be taken as tax advice. Consult with a financial or tax professional before undertaking any new tax strategy.

retirement planning

Roth Conversion

The tax reform that made it through congress in January of 2018, known as the Tax Cuts and Jobs Act of 2017, created potentially excellent opportunities to strategically plan for Roth Conversions.

Not only have income tax rates been lowered, but tax brackets have been widened. This means that individuals can now take more money out of IRAs and pay less in taxes when compared to prior years.

Navigating the impact of taxes on retirement requires a thorough knowledge of the tax code and a deep understanding of the inter-connected components of retirement planning.

For our clients, our team explores all opportunities to reduce income tax and even generate tax-free income. A Roth conversion may be one of the possibilities. A Roth conversion has the potential to lower the amount of taxes you pay over the course of retirement, and most would agree that paying less in taxes is a positive step.

Roth conversions can be done wholly or in part. They can also be done incrementally, which can reduce the amount of taxes you would potentially pay otherwise.

Roth conversions may not be appropriate in all cases, but they are worth exploring for everyone. Armed with a stronger understanding of the costs and impact of converting some of your IRA into a tax-free Roth IRA, you can make a better-informed decision.

There are many reasons to consider a Roth conversion strategy. Some good examples are:

1. You believe taxes may be higher in the future.

2. You want to maximize the assets you leave for kids or grandkids (Roth IRAs can grow for up to 3 generations tax-free).

3. You want to create tax diversification and flexibility as part of your retirement income strategy.

4. You want to reduce the size of your IRA to better prepare for Required Minimum Distributions and the impact they will have on your tax status later.

5. You are concerned about the rising cost of Medicare and RMDs may force you into the IRMAA thresholds.

6. Planning for Roth conversions requires knowing how each marginal dollar withdrawn from your IRA can cause more of your Social Security to be taxed, your Medicare premiums to be higher, and other taxes such as Net Investment Income Tax to kick in. You may even trigger higher capital gains tax treatment if you hit high enough levels.

For interested clients, our team uses technology to develop a tax map to help our clients understand the costs of conversion, and to visually see where different levels of income are taxed and the corresponding impact it has on other sources of income.

Your tax map can show not only where potential tax traps are, but can identify if taking more out of your IRA may result in a smaller marginal tax rate on those additional dollars. In some cases, it is possible to take more out of your IRA and have the effective rate on those dollars can be less than the dollars withdrawn before.

If having a tax strategy along with your retirement plan is important for your situation, working with Oak Harvest may give you the confidence you need to make more informed and impactful decisions.

Do you have a retirement plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at (877) 404-0177

If you have $500K or more and would like a partnership with a firm to help you manage your investments and financial plan as in these videos, click on this link to connect with our advisors:

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