By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
AmextaFinanceAmextaFinance
  • Home
  • News
  • Banking
  • Credit Cards
  • Loans
  • Mortgage
  • Investing
  • Markets
    • Stocks
    • Commodities
    • Crypto
    • Forex
  • Videos
  • More
    • Finance
    • Dept Management
    • Small Business
Notification Show More
Aa
AmextaFinanceAmextaFinance
Aa
  • Banking
  • Credit Cards
  • Loans
  • Dept Management
  • Mortgage
  • Markets
  • Investing
  • Small Business
  • Videos
  • Home
  • News
  • Banking
  • Credit Cards
  • Loans
  • Mortgage
  • Investing
  • Markets
    • Stocks
    • Commodities
    • Crypto
    • Forex
  • Videos
  • More
    • Finance
    • Dept Management
    • Small Business
Follow US
AmextaFinance > Finance > Planning Tips For You To Consider
Finance

Planning Tips For You To Consider

News Room
Last updated: 2023/08/15 at 9:15 AM
By News Room
Share
7 Min Read
SHARE

Perhaps you’ve been thinking about converting part of your traditional Individual Retirement Account funds to a Roth IRA. The advantages are tempting: you don’t have to pay taxes on the proceeds from your Roth investments, nor are you required to withdraw them in retirement, as you are with traditional retirement funds. But you’ve hesitated because a conversion would mean “paying back” the tax break you got when you put part of your earnings into a traditional account. Yes, you would have to pay taxes on what you convert and you wonder whether it’s worth it. Much of the answer depends on whether your taxes will be getting higher in the coming years and, because none of us has a crystal ball, the answer isn’t clear.

Contents
Pay Taxes Now or LaterSeek Out Professional Advice Before ProceedingAny Downsides to Conversions?

We have been helping our clients plan for their future retirement needs for decades and we can see how the federal government’s huge deficit might translate into higher taxes down the road. It might be wise to think about paying taxes now, while they are still relatively low, than to risk having to pay more during your retirement years.

Pay Taxes Now or Later

You might consider converting just some of your retirement accounts–traditional IRA, SEP or SIMPLE IRA – to a Roth IRA. Maybe you have an old 401(k) plan at a previous employer or two that is small enough that you could handle paying taxes on. Many people figure it’s worth paying taxes to convert some funds to a Roth because Roth IRAs do not come with required minimum distributions, or RMDs, which are withdrawals that must be made from qualifying retirement accounts at age 73. If you don’t need the money, you don’t have to withdraw it. And, if you pass on a Roth IRA at death, your beneficiary gets to continue those tax-free withdrawals for at least 10 years after that.

Other Rollover Options

If you have access to a Roth 401(k) account at work, then rolling over that money into a Roth IRA avoids any tax bill. The tax-free nature of the Roth assets is preserved, and you have the full range of investment alternatives your Roth IRA offers. You still may receive a tax reporting form (a 1099-R), but the movement of assets from one Roth to another should result in zero additional tax. Note that designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2022 and 2023. But,

for 2024 and beyond, RMDs are no longer required from designated Roth accounts. Also note when you reach age 591⁄2, you can take as much as you want from the account, without paying taxes or penalties, if you have held the account for at least five years. And rolling over has become simpler – you no longer have to first roll over employer money to a regular IRA and then convert it to a Roth IRA. Now the government allows direct rollovers from traditional 401(k)s to Roth IRAs. As with other forms of conversion, you’ll pay taxes on what you convert in the year you do the conversion (but not on any after-tax contributions).

Seek Out Professional Advice Before Proceeding

A decision on converting or not is a complicated one, with big implications for your tax bill, so be sure to consult your tax pro or financial advisor to guide you through the whole process. You certainly don’t want to inadvertently create a “taxable event!”

Understanding your income tax liability, now and in the future, is key to your decision making about a possible Roth conversion – you certainly don’t want to trigger a tax bill now that would be larger than if you waited to withdraw the money in retirement. important to your decision-making about a possible Roth conversion. Nor do you want a large conversion in a single year to catapult you into a higher tax bracket! Another point worth noting: the current tax brackets are set to expire in 2025 and, unless extended, could very well go higher as lawmakers look for ways to lower the national deficit. That’s another reason to consider a conversion now.

Any Downsides to Conversions?

Actually, yes, at least potentially. Because a conversion is treated as ordinary income, it could increase the tax rate you might be paying on capital gains and qualified dividends. You could lose out on a zero capital gains tax and might have to pay higher Social Security taxes. The higher income caused by a Roth conversion could even reduce your Social Security check and increase the amount you pay for Medicare premiums for the year you make the conversion. That’s all the more reason to work with a financial advisor or tax professional before you leap into a Roth conversion.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 1⁄2 or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Read the full article here

News Room August 15, 2023 August 15, 2023
Share this Article
Facebook Twitter Copy Link Print
Leave a comment Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Finance Weekly Newsletter

Join now for the latest news, tips, and analysis about personal finance, credit cards, dept management, and many more from our experts.
Join Now
How trade tensions are really affecting the global economy

When the UK became the first country to reach a trade agreement…

Hamas gives ‘positive’ response to Trump proposal for Gaza ceasefire

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects…

US Treasury Secretary Bessent talks tariffs, China, global finance

Watch full video on YouTube

CNBC tests the viral Dubai chocolate bars

Watch full video on YouTube

Valve conquered PC gaming. What comes next?

Here at FT Alphaville we love exploring “black hole” companies: those ultra-private…

- Advertisement -
Ad imageAd image

You Might Also Like

Finance

4 Ways To Avoid Fake Shipping Fee Swindles

By News Room
Finance

Dell Supports Endeavor Miami’s Quest To Empower Black Founders

By News Room
Finance

The World’s 10 Most Expensive Cities To Live

By News Room
Finance

Biden Sends Student Loan Forgiveness Emails To 800,000 Borrowers

By News Room
Finance

New Student Loan Forgiveness Application For Those With Medical Issues

By News Room
Finance

Who Really Owns Nursing Homes, And How The Feds Are About To Learn More

By News Room
Finance

Gone Are America’s Cushiest Federal Prisons

By News Room
Finance

Can You Still Get Insurance After A Cancer Diagnosis?

By News Room
Facebook Twitter Pinterest Youtube Instagram
Company
  • Privacy Policy
  • Terms & Conditions
  • Press Release
  • Contact
  • Advertisement
More Info
  • Newsletter
  • Market Data
  • Credit Cards
  • Videos

Sign Up For Free

Subscribe to our newsletter and don't miss out on our programs, webinars and trainings.

I have read and agree to the terms & conditions
Join Community

2023 © Indepta.com. All Rights Reserved.

YOUR EMAIL HAS BEEN CONFIRMED.
THANK YOU!

Welcome Back!

Sign in to your account

Lost your password?