Roth conversions can be an effective strategy in your retirement.

During this webinar, Advanta IRA’s Larissa Greene dives deep into the topic of Roth conversions. Larissa shares the tax benefits, how conversions work, along with the pros and cons.

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For questions regarding the webinar contact:
Larissa Greene, CISP
Business Development Specialist
LGreene@AdvantaIRA.com

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Roth Conversions – How to Get Roth IRA Benefits Regardless of Your Income

When it comes to saving for retirement, one of the most effective strategies is to contribute to a Roth Individual retirement account (IRA). Unlike Traditional IRAs, contributions to a Roth IRA are not tax-deductible, but qualified withdrawals in retirement are tax-free. This creates a fantastic opportunity for individuals to have tax-free income during their golden years.

However, one limitation of Roth IRAs is that they are subject to income limits, meaning individuals with higher incomes may not be eligible to contribute directly to a Roth IRA. For 2022, the income limit for single taxpayers is $140,000, and for married couples filing jointly, it is $208,000. So, what options do high-income earners have to benefit from a Roth IRA?

Enter Roth conversions – a legal and strategic method to bypass income limits and enjoy the benefits of a Roth IRA regardless of your income level. A Roth conversion refers to transferring funds from a Traditional IRA or employer-sponsored retirement plan into a Roth IRA. While this may sound simple enough, there are a few key factors to consider before deciding on a Roth conversion.

First and foremost, it’s important to understand the tax implications of a conversion. When you convert funds from a Traditional IRA to a Roth IRA, you will owe income taxes on the amount converted. It’s crucial to calculate the potential tax liability and ensure you have enough funds available to pay those taxes without depleting your retirement savings.

Timing is another crucial factor to consider. If you expect your income to be lower in a particular year, it may be advantageous to initiate a Roth conversion during that time. For example, if you’re temporarily unemployed or have taken a sabbatical, your taxable income will likely be lower, resulting in a lower tax bill on the conversion.

It’s also worth noting that Roth conversions can be done in portions, allowing you to spread out the tax liability over multiple years. This strategy can help manage your tax burden and make the conversion more financially feasible.

Perhaps the most significant advantage of Roth conversions is the potential for tax-free growth. By converting funds to a Roth IRA, you essentially prepay the income taxes on that money. As a result, any future growth and earnings within the Roth IRA are tax-free, providing a substantial benefit in the long run. This can be particularly advantageous for younger individuals with a longer time horizon for investment growth.

Additionally, Roth IRAs offer flexibility in retirement. Unlike Traditional IRAs, Roth IRAs do not have required minimum distributions (RMDs) during the account holder’s lifetime. This means you can let your account grow undisturbed for as long as you’d like and even pass it on to your heirs, who can continue to benefit from tax-free withdrawals.

Roth conversions can be an excellent tool for individuals who earn too much to contribute directly to a Roth IRA. By strategically converting funds from a Traditional IRA to a Roth IRA, you can take advantage of tax-free growth and tax-free withdrawals in retirement. However, it’s crucial to consult with a qualified financial advisor or tax professional before proceeding with a Roth conversion to ensure it aligns with your overall financial goals and circumstances.

In conclusion, Roth conversions offer a way for high-income earners to benefit from Roth IRA advantages, regardless of the income limits. By understanding the implications, calculating potential tax liabilities, and strategizing the timing, individuals can leverage Roth conversions to create a tax-efficient retirement strategy and enjoy tax-free income during their golden years.