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How to decide if a Roth IRA conversion is right for your tax strategy

Knowing how to decide if a Roth IRA conversion is the right choice for you requires a deeper look. Bruce Hosler covers utilizing a market downturn or a volatile market to consider making a Roth IRA conversion.
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Video Transcript

Hello, I’m Bruce Hosler with Hosler Wealth Management, and I’m going to show you how to decide if a Roth conversion is the right choice for you.

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Roth IRAs can be a great way to turn your retirement assets into future tax-free income. Since the money inside the Roth has already been taxed, you don’t have to pay taxes on qualified distributions, and you don’t have to take a required minimum distribution from a Roth IRA.

When the markets experience a downturn or a volatile year, and your portfolio loses value, this creates an opportunity to consider a Roth conversion. To minimize the taxes, you’ll have to pay that potentially helps leverage a downturn to your advantage. However, there’s lots of fine print that comes along with a Roth conversion and they’re not right for everyone in any given year. You might ask, when could a Roth conversion be a good idea?

  • When you think you’ll be in a higher tax bracket in retirement. Whether because of higher income or because you move to a high tax state.
  • When your retirement account has lost value, offsetting some of the taxes you’ll on the conversion.
  • When you have money outside of the account, ready to pay the taxes.

Now you might ask, when is a Roth conversion a bad idea? Well, one when you expect to be in a lower tax bracket in retirement. If you’re in a higher tax bracket now, you’ll be paying taxes at a higher rate on the conversion than you would pay on the money coming out later. When you don’t have the cash to pay the taxes that you’ll owe, or number three, when you expect to need the money in the Roth, sooner than later, if you withdraw the money from your Roth IRA within five years of the conversion, you might owe penalties due to some of the IRS rules.

Bottom line folks, Roth IRA conversions are a great retirement and tax planning tool, but the details and your personal situation are important considerations. Under current rules, conversions are permanent and there are no do-overs. If you think that a Roth IRA conversion might be a good idea for you, please use the form below to request a call back.

We can walk you through your own tax bracket strategy with your own tax plan and help you decide if a Roth IRA conversion is the right move for you this year. I’m hoping you have the courage to set up your own tax-free income with a Roth IRA. Give us a call and let’s make a plan.

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