There is lots of chatter these days about the merits of Roth conversions especially with the potential sun set of the Trump tax cuts. Should you do a conversion, when, how much, how will it impact your tax payments or obligations of your heirs?

Whether to convert a retirement account or contribute to a Roth account typically revolves around looking at current tax rates and projected rates in the future. Conventional wisdom say if you are taxed at a greater rate today than during retirement, you are better off with traditional before tax 401(k) or IRAs, and conversely if you will be in a higher tax bracket during retirement, then contribute to a Roth account and consider making conversions to Roth accounts.

Unfortunately, things aren’t so simple.  What if you have been a diligent saver and have amassed a large balance in traditional 401(k) and IRA accounts.  You may indeed be in a lower tax bracket during the early years of retirement compared to your working years, but what happens when you need to start making withdrawals once required minimum distributions (RMDs) begin. You could easily be bumped into a higher tax bracket. As a result, it is prudent to know the optimal times, which could begin now, to start Roth conversions.  Another consideration is the tax implications of your heirs. If you expect to leave heirs with retirement account inheritances, understanding yours and your heirs’ tax situation may also influence your decisions regarding Roth conversions.

Let’s talk and we can determine whether Roth contributions or Roth conversions make sense for you.

Roth Conversions