If you’ve been saving the majority of your money into a 401k or an IRA while you’ve been working, you’ll soon have the realization that none of that money has been taxed yet. That’s why we frequently get asked whether it’s a good idea to use a Roth conversion while still working to move some or all of that money into a Roth IRA.

The decisions you make today could potentially save or cost you hundreds or thousands of dollars in retirement and a Roth conversion is one of those strategies that could have a significant impact. Helping people determine if it makes sense to convert their 401k to a Roth IRA while still working is a common exercise we go through with our clients. So, we’ll take you inside some of those conversations to help you understand how to come to that decision for yourself if you should convert to Roth IRA.

Plus, Scott will share an example that might often surprise people, but it will illustrate the importance of tax planning now.

#rothconversion #retirementplanning #taxplanning

Here’s what we cover in this financial video:
0:00 – Intro
1:32 – Introducing our hypothetical couple
2:40 – What is your taxable income today vs future?
5:28 – Factor 1: You think tax rates are going to stay the same
6:32 – Factor 2: Will tax rates go up or down?
10:04 – Factor 3: Will Congress let current tax rates expire after 2025?
13:57 – Factor 4: The Widow’s Tax

FREE Guide to Unlocking Hidden Tax Opportunities: lifemoneyshow.com/taxes

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Investing in a retirement account is an important part of planning for the future. Many individuals choose to contribute to a 401k or IRA to take advantage of tax benefits and save for retirement. However, some people may be wondering if it makes sense to convert their traditional 401k or IRA to a Roth IRA while still working.

A Roth IRA is a retirement account that offers tax-free growth and withdrawals in retirement. This means that any contributions made to a Roth IRA are made with after-tax dollars, but the earnings can grow tax-free and withdrawals are tax-free in retirement. In contrast, traditional 401k and IRA accounts offer tax-deferred growth, meaning that contributions are made with pre-tax dollars but withdrawals are taxed as ordinary income in retirement.

There are several factors to consider when deciding whether to convert a traditional retirement account to a Roth IRA while still working. One consideration is tax implications. Converting a traditional account to a Roth IRA will result in paying taxes on the amount converted in the year it is converted. This can be a significant tax liability, especially for individuals with large account balances.

Another consideration is income level. High-income individuals may not be eligible to contribute to a Roth IRA directly due to income limits. However, there are no income limits for converting a traditional account to a Roth IRA, making it a potential option for high earners looking to take advantage of tax-free withdrawals in retirement.

Additionally, individuals who expect to be in a higher tax bracket in retirement may benefit from converting to a Roth IRA while still working. By paying taxes on the amount converted now, they can potentially save on taxes in retirement when withdrawals from a traditional account would be taxed at their higher future tax rate.

On the other hand, individuals who are in a lower tax bracket now and expect to be in a lower tax bracket in retirement may not benefit as much from converting to a Roth IRA while still working. In this case, it may make more sense to leave the traditional account untouched or consider converting a portion of the account to a Roth IRA.

Ultimately, the decision to convert a traditional retirement account to a Roth IRA while still working depends on individual circumstances and financial goals. It is important to consult with a financial advisor to fully understand the implications of converting to a Roth IRA and determine if it is the right choice for your retirement planning strategy.