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Roth conversion is the process of moving assets from a traditional IRA to a Roth IRA. It’s a smart financial move because a Roth IRA allows investors to take tax-free distributions in retirement, whereas distributions from traditional IRAs are taxed as ordinary income. The question is, when is the best time to do a Roth conversion?

The answer to that question varies depending on everyone’s personal situation. Some people benefit more from doing Roth conversions early in their careers while others should do it later. In general, Roth conversions are most beneficial for people who expect to be in a higher tax bracket in retirement than they are now.

Here are some factors to consider when deciding the best time to do Roth conversions:

Tax Rates
If you expect your tax rate to be higher in the future than it is now, then doing a Roth conversion makes sense. You’ll be paying taxes on the converted amount now, but it’ll save you from paying taxes at a higher rate in the future.

Age
Younger investors should consider doing Roth conversions early because their income and tax rate may increase in the future. They also have a longer time horizon, which means that their money has more time to grow tax-free in the Roth IRA.

Retirement Plan
If you plan to retire soon and you receive a significant amount of retirement income, a Roth conversion may not make sense because it’ll increase your taxable income for the year. But if you’re planning to work through your 60s and 70s or have other sources of income, such as rental properties or a pension, then doing a Roth conversion could be beneficial.

Required Minimum Distributions (RMDs)
At age 72, traditional IRA holders must start taking required minimum distributions, which are taxable at ordinary income rates. If you expect your RMDs to push you into a higher tax bracket than you’re currently in, doing a Roth conversion before age 72 could reduce your future tax liability.

Conclusion
The best time to do a Roth Conversion will depend on your personal financial situation. However, doing Roth conversions early on in your career, when you’re in a lower tax bracket and have a longer time horizon, could be beneficial to save on taxes in retirement. Conversely, if you’re planning to retire soon and already have a significant amount of retirement income, it may be best to hold off on doing a Roth conversion. Ultimately, it is recommended to consult a financial advisor to determine your best course of action for Roth conversions.