Should You Convert To a ROTH?
Updated: Jul 13, 2019
Most of my meetings these days start with "Fiscal cliff...." If you have an extra half hour during this hectic holiday season, you should consider if it's worth your while to convert an IRA to a ROTH IRA before Dec 31. With all the fiscal cliff hype, this can help you avoid lots of taxes in the future.
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Consider converting old 401ks, SEP IRAs, OR Traditional IRAs if any of the following relate to you:
* You have many more years until retirement and know that your income will continuously increase.
* You can afford to pay the taxes now - not including taking them from the account you are converting.
* Your income is above $122,000 as a single person or $177,000 as a married couple.
* How the numbers work. Let's assume you are considering converting a $10,000 old 401k. You are now in a 30% tax bracket which will likely be 35% in 25 years. If you convert it to a ROTH IRA, in 25 years it will be worth $24,268. If you don't convert to a ROTH IRA, it will be worth $22,534 after you take out taxes (5% annual growth).
* Accountants love it or hate it. Agreeably so, they don't want you to be hit with a big tax bill now. However it's important to think of the trade off: pay now a little versus paying a lot in the future.
* Don't want to do the full IRA conversion? Just do a portion. It's better than nothing.
It's not an easy decision but one worth thinking about. Call us to schedule an appointment if it's right for you.