(If you would like to schedule a complimentary, no-obligation meeting with an Altfest professional to discuss your specific investment and / or personal financial planning situation and goals, please contact Jesse Frehling at 212-796-8732 or email him at jfrehling@altfest.com. All meetings are customized and confidential.)

In this video Wealth Matters for Physicians’ Mike Prendergast interviews Jessica Nelson, CPA, CFP® and Financial Advisor at Altfest Personal Wealth Management about a potentially very smart tax-saving strategy: Roth IRA conversions. In the video Jessica briefly explains what a Roth IRA conversion is and its benefits, gives examples of some times when Roth conversions could really make sense, and points out some key items that physicians should be aware of before executing a Roth conversion. Lastly, Jessica explains what a Backdoor Roth Conversion is and outlines when it might be (and might not be) a good idea to execute one.

Wealth Matters for Physicians by Altfest Personal Wealth Management provides physicians key investing and personal financial planning insights to help physicians achieve their important financial and life goals.

For nearly 40 years Altfest Personal Wealth Management has been helping physicians optimize all areas of their personal financial lives in a completely objective, no-commissions manner while serving as a legal fiduciary to always put our physicians’ best interests first. The firm and its leaders have been recognized for excellence in wealth management by Barron’s, Medical Economics, Forbes and the Financial Times amongst others.

Altfest is honored to be the preferred wealth manager for members of the Medical Society of the State of New York, the preferred wealth management education provider of both the New York Chapter of the American College of Surgeons and the New York State Society of Orthopedic Surgeons and a corporate partner of the Medical Society of New Jersey amongst other associations….(read more)

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Pay Less Taxes with a Roth IRA Conversion

Managing taxes is an essential aspect of financial planning that can significantly impact an individual’s wealth and long-term financial goals. One effective strategy to reduce tax liabilities is by utilizing a Roth IRA conversion. A Roth IRA conversion allows individuals to convert funds from a traditional IRA or other tax-deferred retirement accounts into a Roth IRA, resulting in potential tax savings and increased flexibility.

When assessing whether a Roth IRA conversion is suitable for your financial situation, it is crucial to evaluate your current and future tax obligations. Here’s how a Roth IRA conversion can help you pay less taxes:

Tax Diversification:
By converting funds from a traditional IRA or other tax-deferred retirement accounts into a Roth IRA, you are essentially creating tax diversification. Traditional IRAs and 401(k)s are funded with pre-tax dollars, meaning contributions are tax-deductible in the year they are made. However, withdrawals from these accounts during retirement are fully taxable at ordinary income tax rates.

In contrast, Roth IRAs are funded with after-tax dollars, meaning contributions are not deductible, but qualified withdrawals are tax-free. By converting funds from a traditional IRA to a Roth IRA, you have the opportunity to diversify your retirement savings by having a mixture of taxable and tax-free accounts. This diversification can provide flexibility during retirement by allowing you to control your taxable income and potentially pay fewer taxes.

Tax-Free Growth:
One of the significant benefits of a Roth IRA is the potential for tax-free growth over time. Traditional IRAs and 401(k)s grow tax-deferred, meaning you don’t pay taxes on the growth until you withdraw the money in retirement. On the other hand, Roth IRAs grow tax-free. This means that all the earnings within a Roth IRA, including interest, dividends, and capital gains, can grow and compound without any tax liability.

By converting funds to a Roth IRA, you can take advantage of tax-free growth on those assets. This strategy is particularly beneficial for individuals who have a long time horizon until retirement, as it allows more time for the funds to grow and accumulate tax-free. Ultimately, this can lead to significant tax savings in the future.

Eliminating Required Minimum Distributions (RMDs):
Another advantage of a Roth IRA conversion is that it can help eliminate Required Minimum Distributions (RMDs) on tax-deferred accounts. Traditional IRAs and 401(k)s require individuals to start taking distributions known as RMDs once they reach age 72. These distributions are taxable and can potentially increase an individual’s tax bracket, resulting in higher tax liabilities.

By converting funds to a Roth IRA, you are not subject to RMDs for yourself, your spouse, or any heirs. Roth IRAs do not have RMDs during the original account holder’s lifetime, allowing you more control over your taxable income and potentially reducing tax obligations.

Considerations and Limitations:
While Roth IRA conversions can offer significant tax benefits, it is essential to understand that the conversion is treated as taxable income in the year it occurs. This means that the amount converted is added to your income for that tax year, potentially pushing you into a higher tax bracket.

Additionally, individuals with large IRAs should carefully consider the tax implications of a Roth IRA conversion, as the higher amount converted can result in a substantial tax bill. It may be wise to convert smaller amounts over multiple years to manage the tax impact effectively.

In conclusion, a Roth IRA conversion is a powerful strategy that can help individuals pay fewer taxes over the long term. By creating tax diversification, taking advantage of tax-free growth, and eliminating RMDs, a Roth IRA conversion can provide significant tax savings and added flexibility during retirement. However, it is crucial to assess your specific financial situation and consult with a tax advisor or financial planner to determine if a Roth IRA conversion is suitable for you.