Key things to consider when deciding on Roth conversions

Cash money generic dollars
Posted at 10:29 AM, Oct 28, 2021
and last updated 2021-10-28 17:35:39-04

As we rapidly approach the end of the year, one of the key things many of us should be considering is Roth conversions.

Our financial resource Carl Carlson, CEO & Founder of Carlson Financial, explained what a Roth conversion is, what is the benefit of doing one and how much should be converted.

He said we put money into an IRA, either a traditional IRA or a Roth IRA, it is called a contribution and most of us are limited to $6,000 or $7,000 per year combined to either an IRA or Roth IRA or a little to both. But a Roth conversion is when you convert money that is already in an IRA to a Roth IRA. There is no limit to how much can be converted each year from an IRA to a Roth IRA. Carlson said thing to remember though is that when you convert an IRA to a Roth IRA, you must pay all the taxes on the IRA that year.

So, what is the benefit of converting an IRA to a Roth IRA? Carlson said once the money is in a Roth IRA it grows tax-free and can be taken out tax-free anytime during your life. If you are in a lower tax bracket now than you will be when you are retired then it makes sense to pay the taxes now and then take money out tax free in retirement.

Carlson said many of his clients are either in the same tax bracket or a higher one in retirement. And if you believe that tax rates will be higher in the future then they are today, you would definitely want to be converting to Roths now.

He said to remember that you generally don’t have to convert all of an IRA at one time. You can do what are called partial Roth conversions. And for most people, some sort of a partial Roth conversion over a period of several years makes the most sense. And, as a general rule, if a Roth conversion is right for you, you should convert enough to take you to the top of your current Income Tax bracket. And, for a significant amount of people we recommend converting all the way up to the top of the 24% tax bracket, Carlson said.

For help on this call 844-CARLSON or reach out through our website to see if you qualify for our free Roth Conversion Review.