Roth Conversions
A Roth conversion refers to the transfer of an Individual Retirement Account (IRA), either Traditional, SIMPLE, or SEP-IRA, into a Roth IRA. With Roth IRAs, you pay tax on the money before it transfers into the account.
Benefits of a Roth IRA Conversion
- One benefit to having your money in the Roth IRA is that, unlike a Traditional IRA, you currently are not obligated to take Required Minimum Distributions (RMDs) after you reach age 72. This created another bucket- a tax-free bucket- which allows for more efficient tax planning in the future. Be sure to ask us for an example when you fill out the form below.
- Another benefit is that since the money was taxed before going into the Roth IRA, any distributions are tax-free. Keep in mind that tax rules are constantly changing, and there is no guarantee that Roth IRA distributions will remain tax-free.
- The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 1⁄2 or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
Should I convert to a Roth IRA?
Conversion to a Roth IRA may be appropriate for you if:
- You have enough money outside of your IRA or employer plan to pay the taxes that will be due.
- You expect that you will be in the same or in a higher tax bracket when you retire.
- You will not need access to the assets until a significantly later date.
- You are already saving for retirement with an employer-sponsored plan
- You are willing to give up some features of your employer plan in order to gain IRA features, such as nearly unlimited investment options, and perhaps more flexible beneficiary options.
- You want to eliminate having to take Required Minimum Distributions from these funds during your lifetime.
Contact us today to learn more about your options surrounding converting your IRA.
Thinking about converting your Traditional, Simple, or SEP-IRA to a Roth IRA?
The first step is a consultation with one of our Peak Wealth Partners team members.
To begin the process, please share some brief information about yourself and your financial goals – and we will be in touch. Or, you can email us.