PHOENIX — Reaching your retirement goals is possible despite the bipolar nature of today’s economy, and Roth conversion can be a major factor in securing that reality.
This form of asset consolidation means you essentially transfer funds from your existing 401(k)s and IRAs into a singular Roth IRA account.
A primary benefit of a Roth IRA account? You are able to observe tax-free growth while also not being penalized for any withdrawals. Plus, the account ultimately provides tax-free inheritance for future generations.
Some believe that the option isn’t right for them if their income is too high to fully contribute to such an account, which is more than $150,000 for single filers and more than $236,000 for joint filers in 2025.
However, Asset Preservation Wealth & Tax says any income bracket can benefit from Roth conversion because you can “pay regular income taxes on the converted amount.” By taking care of taxes in the present, you can unlock the power of tax-free withdrawals as well as tax-free earnings in retirement. This becomes available once you’ve both reached age 59.5 and have had the account open for at least five years.
When should I go through with Roth conversion?
A period of low tax rates is the optimal time to convert your traditional accounts into a Roth IRA. This frees you up to pounce on your conversion tax payment immediately before higher rates inevitably arrive.
Another good time for conversion is during a down market period because your purchasing power increases.
A rule of thumb, however, is to convert your accounts near the end of a given year so that you can factor in “any year-end changes to your total taxable income,” according to Rob Williams, managing director of financial planning at the Schwab Center for Financial Research.
Other tips for Roth conversions
To not be negatively affected by a higher tax bracket, you can convert the difference between your current income and the next bracket. For example, if you are a single filer with an income of $145,000 and the next bracket comes at $164,925, you can convert the difference ($19,925 in this case) and effectively max out your bracket status.
If early Roth conversion tax payment is not possible, you can also ease the tax hit by transferring your traditional account funds over multiple years.
Claim a free portfolio review by Asset Preservation Wealth & Tax online or call 877-573-8473 for more information.
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