Roth conversions class set June 19
If you are considering or even have considered making conversions from your IRA or 401(k) to a Roth IRA, paying some tax, and benefiting from 15, 20 or more years of tax-free growth, you are smart to explore the options. They often provide great benefits, but I often hear people quickly dismiss them. Here are some tips on important items to consider.
Age/health: If you are age 75 or older, there may not be a lot of time for you to recover the taxes paid. If you are in great health and have longevity in your family, Roth conversions may still make a lot of sense.
Tax: Sage advice says when doing conversions, it is not really all about your tax bracket, it is about what percentage that tax is to your total investments. For example, if you convert $50,000 and the tax due is $12,000, and you have $700,000 of investable assets, you are only paying 1.6% out of your portfolio to tax. This is a percentage return your overall portfolio may make up in a market year.
Future use of your Roth assets: There is a real possibility, God willing, that you will need dollars later in your life for assisted living or nursing care. Converting all of your IRA/Traditional 401(k) dollars may not make sense, as dollars withdrawn from an IRA for medical use also may be a healthcare expense, which is deductible on your tax return. Therefore, any money taken from an IRA, which is normally 100% taxable to you, when spent on your healthcare may be tax-deductible and therefore come out of your IRA effectively tax-free. So why would you pay tax on converting all your IRA assets when some may come out nearly tax-free? This is custom and unique to every individual and couple out there, so it is a consideration. Be careful considering whether it will be a deductible healthcare expense, when used for long-term care use. Tax laws may also change as well.
When doing Roth conversions, there are great tools and software for properly doing them, and knowing if they may work for you. If someone quickly dismisses them, you may want to take another look. It takes a good bit of work to figure it out, but often there are hundreds of thousands of dollars that could be to your benefit.
To learn more about Roth conversions, register for our class set for 10 to 11 a.m., Monday, June 19, at the Lewes Public Library. To register, go to retireinfocus.com/educational-classes.
