A good first step in deciding on a Roth IRA conversion is reviewing annualized income and tax projections. This provides a clearer picture of your tax bracket and helps you weigh the potential benefits of converting pre-tax retirement assets into a Roth IRA. While a conversion may increase your tax bill in the year you convert, it can also create long-term tax-free growth. Careful planning allows you to decide if the short-term cost is worth the long-term flexibility and potential savings.
Why Consider Roth Conversions?
A Roth IRA offers tax-free growth and tax-free withdrawals in retirement—a valuable advantage if you anticipate higher taxes in the future. Converting part or all of a Traditional IRA to a Roth IRA may allow you to pay taxes at today’s rates, rather than potentially higher rates later in life or during retirement distributions.
This strategy is especially attractive in years where:
- Income is lower than usual
- Deductions are higher
- You have room in a lower tax bracket
Considerations now allow more time to analyze year-to-date income and to determine how much can be converted without pushing you into a higher tax bracket.
Additional Benefits: Flexibility and Legacy Planning
Roth IRAs also don’t require Required Minimum Distributions (RMDs), giving you more control over your retirement income. From a legacy planning perspective, they can be a powerful tool to pass on tax-free income to heirs, especially under the 10-year distribution rule enacted by the SECURE 2.0 Act.
Backdoor Roth Option
For high earners who exceed Roth IRA income limits, a Backdoor Roth IRA strategy, contributing to a Traditional IRA and then converting to a Roth remains a viable option; however, this must be done with awareness of the pro-rata rule and potential tax implications. This is where our wealth team’s guidance is essential.
Curious whether a Roth conversion could benefit your retirement outlook or tax picture? At BCA Private Wealth, we help clients across the Upstate and beyond align their investment strategies with tax-smart decisions. Mid-year is a great time to start a conversation.
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This material is prepared by BCA Private Wealth for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
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