Dean Barber and Bud Kasper always have a blast when they attend Ed Slott’s Elite IRA Advisor GroupSM workshops. At the workshop they attended in April in Baltimore, they reviewed several things to consider before doing Roth conversions. Dean and Bud are going to give a brief recap of what they discussed at the workshop as they go over pros and cons of converting to a Roth IRA on America’s Wealth Management Show.

Timestamps:
00:00 – Introduction
02:10 – Dean & Bud’s Top 3 Reasons to Convert (or Not)
08:04 – Ed Slott’s Reasons to Convert (or Not)
20:44 – What We Learned in Today’s Show

More on this episode:

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Retirement Plan Checklist:
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6 Reasons Roth Conversions Could Work for You:
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When planning your retirement, deciding how to maximize your savings and protect your assets is crucial. One option to consider is converting your traditional IRA to a Roth IRA.

A Roth IRA is a retirement account that allows your money to grow tax-free, meaning you won’t have to pay taxes on your earnings when you withdraw the money in retirement. Additionally, Roth IRAs have no required minimum distributions (RMDs), meaning you can leave your money invested in the account as long as you wish without having to withdraw it.

However, there are both pros and cons to converting to a Roth IRA, and it’s important to consider both before making a decision.

Pros
1. Tax-Free Income in Retirement: By converting to a Roth IRA, you pay taxes upfront on the money you contribute, allowing you to withdraw all your money in retirement tax-free. If you expect your tax rate to rise in the future, paying taxes now could lead to bigger savings in the long run.

2. No Required Minimum Distributions: When you reach age 72, traditional IRAs require you to start taking annual RMDs. Failure to take your RMD will result in penalties. With a Roth IRA, there is no such requirement, giving you the flexibility to keep your money invested as long as you want.

3. Estate Planning: Roth IRAs can be a valuable tool for estate planning. Although you will still have to pay estate tax, your beneficiaries will not have to pay income tax on distributions made from the account.

Cons
1. Taxes: The biggest downside to converting to a Roth IRA is that you’ll have to pay taxes on any contributions and earnings you transfer over from your traditional IRA. Depending on your tax bracket, these taxes could be substantial. Additionally, if you’re converting later in life, paying the taxes could diminish the value of your account significantly.

2. Short-Term Losses: In the short term, converting to a Roth IRA could lead to a loss in your account balance. This is because you’ll have to pay taxes on the conversion amount upfront, reducing the amount of money you have in the account.

3. Limited Eligibility: Roth IRAs have eligibility requirements, and not everyone qualifies to contribute. Additionally, there are income restrictions that could limit your contributions or prevent you from converting your traditional IRA to a Roth IRA altogether.

In conclusion, converting to a Roth IRA can be a beneficial move for some individuals, but it’s not the best option for everyone. It’s essential to speak with a financial advisor and weigh the pros and cons before making a decision. By considering your current financial situation and long-term goals, you can determine whether this option is right for you.