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For many retirees looking to build a tax-efficient retirement, Roth Conversions are a necessity.
However, Roth Conversions can also HURT your retirement in certain circumstances and thus, lower your probability of success.
This is a confusing topic but one we shed light on in today’s video…
#rothconversion #retirementincomeplanning
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As you approach retirement age, you may be considering various strategies to maximize your savings and ensure a comfortable financial future. One popular strategy that is often recommended is converting assets from a traditional IRA or 401(k) to a Roth IRA. However, it’s important to understand that Roth conversions can potentially have negative consequences for your retirement plan.
A Roth conversion involves moving funds from a tax-deferred retirement account, where contributions are made with pre-tax dollars and withdrawals are taxed as income, to a Roth IRA, where contributions are made with after-tax dollars and withdrawals are tax-free. The primary benefit of a Roth conversion is that it allows you to potentially reduce your future tax burden by paying taxes on the converted amount now rather than when you withdraw the funds in retirement.
While Roth conversions can be a useful tool for some individuals, there are several potential drawbacks to be aware of. First and foremost, converting a large sum of money to a Roth IRA can result in a significant tax bill in the year of the conversion. This can potentially push you into a higher tax bracket and negate any potential tax savings in the long run.
Additionally, Roth conversions can impact your eligibility for certain tax deductions and credits, such as the child tax credit or the earned income tax credit. Converting a large sum of money to a Roth IRA could potentially reduce or eliminate these valuable tax benefits, which would ultimately hurt your overall financial situation.
Furthermore, Roth conversions can also have negative implications for your future retirement income. By converting a large sum of money to a Roth IRA, you could potentially deplete your traditional retirement accounts, which may have offered more flexibility in terms of withdrawals and required minimum distributions. This could potentially leave you with less income in retirement than you had originally planned for.
In conclusion, while Roth conversions can be a valuable tool for some individuals, it’s important to carefully consider the potential drawbacks before proceeding. It’s advisable to speak with a financial advisor or tax professional to determine whether a Roth conversion is suitable for your individual financial situation. By weighing the potential benefits and risks, you can make an informed decision that will help preserve and enhance your retirement plan for the future.
Great Video!
I am currently in my 40s and This is no time to taper retirement savings. I want to max out my retirement contributions and I also have another $200k in a savings account that i want to invest in a non-retirement account. Where should I invest it now?
Tax Cut and Jobs Act. Trump and the Repubs pulled a fast one on John Q Public
Perhaps this has already been addressed, it seems the videos I've watched are directed towards people who have a high retirement balance. Are there any advantages / disadvantages for those in the median range to do Roth conversions. ?
RCs optimize money when you don’t need it and add risk to your worst case scenarios.
Our politicians can never control spending. So, the fact is taxes will go up. So these games are all well and good. For me, this is a decision on do you want to hope tax rates will not sky rocket with the dumb ass Democrats. My bet is it will go up. I am taking the conversion at a bit higher rate as I have out of plan money I can use and not hurt my life needs.
But what about the fact that the account is growing? If the money doubles in seven years then I am paying half the taxes if I do it up front with a Roth conversion at the same tax rate. I suppose you would take inflation into account, but you are still saving on the spread between investment gains and inflation, or am I missing something?
This may seem like a dumb question, but can’t I take my RMD and place it in an IRA, then deduct that amount when calculating my taxes owed?
Thanks for covering this. I’ve always felt that it was not a good move for me at this point in my life.