Apr 15, 2021
On this episode of My Smart Retirement, Nancy Fleming explains what a Roth IRA conversion is and whether it may be right for you.
Some employers are offering Roth options as part of their 401k options, so some people already have a Roth. One thing to keep in mind is taxes. You need to think strategically about the possibility of higher taxes and their affect on your retirement assets going forward. Higher taxes could begin in 2022, especially for higher income earners.
This year, 2021, is a key year for determining whether a Roth conversion would be a good idea for your portfolio. The strategy works like this – you transfer some of your assets from a tax-deferred account into a tax-free account.
You can transfer a 401k, SEP, 403b or traditional IRA assets to a Roth IRA and you pay income taxes on whatever asset is transferred. You’re paying taxes on your seed money instead of paying taxes on your harvest.
There are some complex rules around this type of conversion. If you’re converting after the age of 72, you have to take your required minimum distribution first.
Also, if you get the check, you have to make sure it gets deposited in the new Roth IRA account within 60 days of the distribution or it will not be considered a rollover conversion but a distribution and you’d get a 10% penalty if you’re under 59.5 years old.
Roth conversions are especially helpful if you’re younger. The tax will be less because the asset is smaller, and it gives it all these years to grow.
Check out the full episode or use the timestamps below to hear a specific segment.
1:16 – 2021 a key year
3:38 – Required minimum distribution
4:48 – Deposit your check
7:17 – When you can access the money
9:23 – Gap year
10:55 – Benefit of being younger
12:06 – Living off savings
13:19 – When does it not make sense to convert?
15:35 – What doesn’t make sense to convert?
17:35 – Inheritance planning
19:43 – Leaving IRA to a charity
20:10 – In summary
For additional financial resources, visit us online: http://flemingfinancialservices.com