Roth IRA conversions and other retirement planning questions
In: Podcasts, Retirement Planning

“Hello, Ryan. In one of your earlier podcasts you talked about how a Roth IRA can be used to make myself more tax efficient. That got me thinking, and I’m considering a Roth conversion before the year’s end. You also said a conversion might not be right for everyone, so my question to you is how do I know if this is the right move for me? Thanks.” – Andrew

Welcome, Andrew. You’ve asked a great question, and I want to congratulate you for two things here – first, for taking the initiative to think about tax efficiency, and, second, for seeking professional advice before making such a huge decision.

Before I can answer your question, though, there are a lot of considerations we’d need to weigh.

The upside to a Roth conversion is that your money will enjoy tax-free growth… and qualifying withdrawals are also tax-free. To put it another way, you’ll never pay a dollar in taxes on the money in your Roth IRA – ever again – and that includes the interest. That’s the main attraction, but it isn’t the only one.

Whatever income you draw from your Roth IRA will also be ignored by the IRS when they decide how much of your Social Security will be taxed. And the amount of income you choose to take from the Roth IRA is entirely up to you. There are no required minimum distributions, and you can pass whatever remains in your Roth IRA down tax-free to your heirs, too.

Sounds like an all-around win, right?

Well, there are some drawbacks to a Roth conversion. You will pay taxes on the money you convert. So, if a conversion will bump you into a higher tax bracket, or if you plan to be in lower tax bracket during retirement, this might not be the best strategy for you at the moment.

On the other hand, if you’re currently in a lower tax bracket but expect for that to change in the future, then a conversion is certainly worth considering.

I hope this helps with your decision, Andrew. I encourage you and everyone else to join me in today’s podcast as we dig a little deeper into this topic. And, as always, we’ll be answering a host of other questions I’ve received.

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