A Roth conversion is a simple adjustment that turns your Traditional IRA into a Roth IRA. This conversion can provide long-term tax benefits. However, before you convert your IRA, it is important to understand if making the change is right for you.
Is a Roth IRA conversion right for you?
Though at the forefront, a Roth conversion seems like its benefits far outweigh any negative effects, there are a few factors to take into consideration to ensure it is the right move.
A conversion is right if:
A conversion might not be right if:
How can I make a Roth IRA conversion?
Once you know if a Roth conversion is right for you, ensure you have funds in an existing Traditional IRA. Then, contact the Huberty team to help you open a Roth IRA, make the conversion, and assist you in a plan to pay the taxes.
When should I make my Roth IRA conversion?
It is important to know that you don’t have to convert your entire Traditional IRA at once in the case that you can’t afford to pay the taxes in full. However, there are some strategies to ensure you are making the conversion at the right time. You should consider converting when:
There are numerous other factors to take into consideration when looking to make a Roth conversion, like workplace retirement plans and Medicare surtaxes. Work with our Wealth Management team to find the best option for you!
Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Financial Specialists LLC nor any of its representatives may give legal or tax advice.
-Written by Eric E. Gurholt, CPA/PFS, CFP® | Financial Advisor
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