Worried About Taxes at Retirement Age? Consider a Roth Conversion

Featured Image

All retirement account types offer unique tax benefits. Traditional IRAs alleviate your financial burden in the near term by allowing tax-deferred contributions, while Roth IRA distributions can be 100% tax-free if qualified. Perhaps you've already built an impressive Traditional IRA but want the additional tax advantages of a Roth IRA. Fortunately, you won't have to open a new account and start over if this is your desired path. You may instead adjust some or all of your existing pre-tax holdings to a post-tax status by executing a Roth conversion. There are no limitations to the size and scope of allowable conversion activities at this time, so you could combine multiple Traditional IRAs at any value into a single Roth IRA if you're so inclined. You may also convert your assets in-kind, so you wouldn't have to liquidate your holdings before making the switch.

Because Traditional IRA contributions and earnings are tax-deferred, any cash or assets would be added to the plan holder's income in the conversion year and taxed in a similar manner as a pre-tax distribution (although no early distribution penalties would apply for conversions that take place before reaching age 59 ½). Any future distributions from the Roth account will bear tax-free benefits if the guidelines for qualified Roth IRA distributions are followed. Once the process is complete, you may enjoy the growth and distribution of your established assets as if they were held in a Roth IRA all along. The deadline for Roth conversion activities in a given tax year is December 31 of said year.

Please keep in mind that you may no longer re-characterize your converted cash or assets back to a Traditional IRA. As such, we encourage you to conduct as much due diligence as possible and consider all possible factors before executing a Traditional IRA to Roth conversion. For more information about your full spectrum of options afforded through self-directed investing, please don't hesitate to give us a call at 877-742-1270 or send us an e-mail at info@ndtco.com.

Add a comment