The Stock Market is truly driving many folks crazy. We got so comfortable with the highs of the past 12 years we all forgot what it feels like to go down. It doesn’t feel good if you are invested in the stock market, I can tell you that. So what is an investor to do? How can we ease the pain of these current loses? Especially when the loses are affecting your retirement saving plans like a traditional IRA,401k, 403b or 457. One solution may be converting your account to a ROTH IRA. Here are 3 reasons why you may consider doing this right now.
- Taxes will be less on your reduced portfolio. Although watching your balance go down is upsetting, on upside you will end up paying less taxes because of it. You will have to pay taxes on the amount you convert but once it is in an established ROTH account you no longer have to pay taxes on the growth when you take it out. You also do not have to take RMDs when you are 72 (73 as of 2023).
- Taxes may go up. My crystal ball is in the shop so I can’t read the future but taxes could go up by the time you start taking out your retirement money. Right now taxes are relatively low even though it doesn’t seem that way. But you can take advantage of the current tax rate if you chose to do a ROTH conversion now. Some of the tax rates are expected to expire in 2025. We don’t know what will happen after that. Sometimes it’s better to deal with the devil you know.
- Considerations- Keep in mind you need to have cash on hand to pay the taxes due on the conversion. You can not use your retirement money to pay the taxes. Also, if you convert a large amount you must discuss with your tax professional if the conversion will impact your current tax bracket. The amount you convert could push you into a higher bracket. Finally, you can not undo a conversion. So plan wisely and with a professional.
If you have a desire to do a conversion or find out more about converting one of your IRAs feel free to reach out to our office. We will be happy to discuss your unique situation. Remember we are not tax experts but rather financial professionals. For tax advice please seek guidance from you tax resource.
Michael Lehrhaupt is an investment adviser representative with Foundations Investment Advisors, LLC, marketing his advisory services under the name Strategies for Wealth Management, LLC.
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The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Laura Lehrhaupt providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
This is for illustrative purposes only as you may not be suitable for a Roth conversion. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The purpose is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies.