4 Reasons to Consider Doing a Roth IRA Conversion Before the Year Ends

4 Reasons to Consider Doing a Roth IRA Conversion Before the Year Ends

November 28, 2022
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If you're like most people, you've been diligently saving for retirement in a traditional IRA. And while there's nothing wrong with that, there may be some benefits to doing a Roth IRA conversion before the year ends. 

Many people are increasingly focusing on saving for retirement, and an essential part of this process is understanding how to make the most of different investment accounts. One excellent way to do this is by utilizing a Roth conversion, which involves transferring money from a traditional pre-tax IRA into a Roth IRA. It is something that can offer fantastic long-term benefits. When you make the Roth conversion, you will need to pay income taxes on the amount transferred; however, any growth associated with the funds will become tax-free when withdrawn, provided specific eligibility requirements are met. One condition includes owning the Roth account for five years or more and not taking a withdrawal before age 59 ½ - which are essential considerations when deciding whether or not a Roth conversion is suitable for your situation. Understanding what Roth conversions entail makes it easier to ensure you're unlocking all your retirement savings options in the short term and well into the future.

Here are four reasons why you might consider a Roth Conversion:


1. A lower tax bill in retirement. 

With a traditional IRA, you pay taxes on your withdrawals in retirement. With a Roth IRA, your withdrawals are tax-free. Suppose you expect to be in a higher tax bracket in retirement. In that case, it might make sense to do a Roth IRA conversion now to take advantage of the lower taxes while you're still working and in a lower tax bracket.


2. The ability to withdraw your contributions tax-free and penalty-free at any time. 

With a traditional IRA, you can only withdraw your contributions after you turn 59 1/2 without paying taxes or penalties. With a Roth IRA, you can withdraw your contributions anytime without paying taxes or penalties. So, a Roth IRA may be the better option if you need access to your money before retirement.


3. No required minimum distributions (RMDs). 

With a traditional IRA, you must start taking distributions at age 72. With a Roth IRA, there are no required distributions, which means you can leave your money invested for even longer—and let it grow tax-free!


4. The peace of mind that comes with knowing your money will be there when you need it. 

Because Roth IRAs don't have RMDs, your money can keep growing tax-free even after you reach retirement age. That means you'll have more money to cover unexpected expenses—like healthcare or long-term care costs—in retirement. And that's a nice safety net to have!


Conclusion: 

If you're saving for retirement in a traditional IRA, there may be some benefits to doing a Roth IRA conversion before the year ends. 

  1. A lower tax bill in retirement 
  2. The ability to withdraw your contributions tax-free and penalty-free at any time. N
  3. No required minimum distributions (RMDs) 
  4. The peace of mind that comes with knowing your money will be there when you need it are all great reasons to consider a Roth IRA conversion. 

Contact me today to schedule a "1 on 1" complimentary consultation to see if a Roth Conversion is right for you. Book a 1 on 1 Consultation meeting today


References;

Fidelity Go | Robo Advisor FAQs | Fidelity Investments. https://www.fidelity.com/managed-accounts/fidelity-go/investment-account-faqs

The Benefits of Estimating Your Tax Bracket When Investing - Betterment. https://www.betterment.com/resources/calculating-tax-brackets

How Are IRA Withdrawals Taxed? - Investopedia. https://www.investopedia.com/ask/answers/102714/how-are-ira-withdrawals-taxed.asp