Eliminate the Uncertainty of Future Tax Rates

If you are going to be mad about paying taxes, why not be mad for one year now rather than mad about taxes throughout retirement. If you convert your traditional retirement accounts over to ROTH retirement accounts, you can eliminate the uncertainty of future tax rates by paying tax now and allowing your investments to grow and be distributed to you, tax-free in retirement.

Reasons to convert to a ROTH:

• No RMDs (Required Minimum Distributions) are required from ROTH plans in retirement, meaning you don’t have to take money out if you don’t need it.

• Inherited ROTHs will not cause tax issues for beneficiaries. Under new SECURE Act rules, any inherited retirement account must be fully distributed within ten years. This rush to empty the account can cause a large portion of that distribution to be used to pay the related taxes. With the ROTH, the beneficiaries would owe no tax, as you have already paid.

• Inclusion of traditional retirement funds in a trust after your death will be taxed at the high trust rates before being distributed to the trust beneficiaries.

Reasons to hold off on ROTH conversion:

• You are close to retirement and do not have a large retirement fund balance.

• You are very charitably minded and plan on using your RMDs as part of your plan to pass your assets over to your favorite charities in retirement.

• The conversion will send your AGI (Adjusted Gross Income) to a level that will eliminate the benefit of tax credits like the Qualified Business Income Deduction.

• You are over age 63 and the increased income will affect your Medicare premium calculations.

Each situation is different so please consult with your tax advisor before making any decisions on conversion.