“Greetings Andi, hello Dynamic Joe and Steady Al, My Question – Should I transfer funds from my Traditional IRA to ROTH? The situation: $250K + Dividends + Capital Gains – Standard Deduction puts me at the top of the 24% Tax Bracket. For 3 years (age 69, 70 and 71) my income (excluding Dividends and Capital Gains) will be Zero. My Goal is to reduce the Tax Deferred Accounts and I see two options:
1. Transfer $250K/year from TIRA to ROTH IRA and use Cash to fund 3 years of annual expenses which are $150K per year (includes taxes). I do have the funds in case there is doubt.
2. Withdraw $250K/year from TIRA and invest $100K not spent in the market. The two actions will result in the same IRA balance (which is currently high) at the end of 3 years.
The advantage of Strategy 1 is that the ROTH investment grows tax free, but the disadvantage is the inherited amount must be withdrawn within 10 years.
The advantage of Strategy 2 is there is no withdrawal time limitation, and the After-Tax Investments grow in perpetuity while the disadvantage is there will be a Capital Gains tax of 20%. The assets will be inherited by our three children who are doctors, so in the highest tax bracket and have no need for the funds. It is highly likely that the inherited assets can stay invested for longer than 10 years. Would love to hear you spitball the two strategies.
We have a Lexus 350 and a Mazda CX5, enjoy traveling so the cars are rarely used. The Lexus is 4 years old and has around 7K miles. My drink of choice is a 16+ year single malt from Islay with a splash of water while my wife prefers H2O. Pets are no longer in the picture due to our travel…would not be right if they spend 6 months in a kennel. I have been a listener for 4 years and have recommended your podcasts to friends and family. Keep up the great work, the humor and mispronunciation which while intentional is AMYOUSING. — Sunny D”

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IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
• Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.
CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period….(read more)

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Should I Convert Traditional IRA Funds to Roth, or Invest?

Deciding whether to convert traditional IRA funds to a Roth IRA or to simply invest is a decision that many individuals grapple with. The answer isn’t always straightforward, as it depends on a variety of factors including your current financial situation, tax implications, and long-term financial goals. In this article, we will explore the pros and cons of both options and provide some guidance to help you make an informed decision.

On a recent episode of the Your Money, Your Wealth® (YMYW) podcast, hosts Joe Anderson, CFP® and Big Al Clopine, CPA discussed the topic of converting traditional IRA funds to a Roth IRA. They highlighted the potential benefits of a Roth conversion, as well as the alternative option of investing those funds in traditional retirement accounts.

Converting traditional IRA funds to a Roth IRA offers several potential advantages. One of the main benefits is that Roth IRA withdrawals in retirement are tax-free, whereas traditional IRA withdrawals are taxed as ordinary income. By converting to a Roth IRA, you can potentially save on future taxes and allow your retirement savings to grow tax-free. In addition, Roth IRAs do not have required minimum distributions (RMDs) during the account owner’s lifetime, which can provide flexibility in retirement planning.

However, it’s important to consider the tax implications of a Roth conversion. Converting a traditional IRA to a Roth IRA is considered a taxable event, as the amount converted is added to your taxable income for the year in which the conversion takes place. This can result in a significant tax bill, particularly if you are converting a large sum of money. It’s important to weigh the potential long-term tax benefits of a Roth IRA against the immediate tax consequences of a conversion.

On the other hand, investing traditional IRA funds in the market can provide an opportunity for those funds to potentially grow over time. By investing in a diversified portfolio of stocks, bonds, and other assets, you have the potential to generate returns that can contribute to your long-term financial goals. However, it’s important to consider the impact of taxes on your investment returns, as well as the potential for market volatility and investment risk.

In deciding whether to convert traditional IRA funds to a Roth IRA or to invest, it’s important to consider your current financial situation, your long-term financial goals, and the potential tax implications of each option. It may be beneficial to consult with a financial advisor or tax professional to help you evaluate the pros and cons of each option and determine which strategy aligns with your overall financial plan.

Ultimately, the decision to convert traditional IRA funds to a Roth IRA or to invest depends on your individual circumstances and financial objectives. Both options have their own set of advantages and considerations, and it’s important to carefully weigh the potential benefits and drawbacks of each before making a decision. By taking the time to assess your options and seek professional advice, you can make an informed choice that aligns with your financial goals.

In conclusion, the decision to convert traditional IRA funds to a Roth IRA or to invest is a complex and individual one. Both options have their own set of potential benefits and considerations, and it’s important to carefully weigh the pros and cons of each before making a decision. Whether you choose to convert to a Roth IRA or to invest, it’s important to consider your overall financial plan and seek professional guidance to ensure that your decision aligns with your long-term financial goals.