Taxes are probably not getting any lower, and they aren’t going away. So tax planning is becoming more and more important. Should you consider doing a Roth Conversion? Here are some things to consider:
Questions to Consider
Will you need the money for income from your retirement account? If so, do you expect to be in the same or lower tax bracket? If you expect to be in a lower tax bracket, you may be better off not doing a Roth Conversion and continuing to defer the tax as long as possible.
Is the Roth Conversion for Estate Planning?
If you plan on using your Roth as an estate planning tool you may think a Roth Conversion is a no-brainer. Not so fast. What if your beneficiaries will more than likely be in a lower tax bracket than you are? Or what if they’ll be in the same tax bracket? You might be better off keeping it in an IRA rollover and deferring the tax as long as possible. Unless the IRA distributions as a beneficiary will put the beneficiary in a higher tax bracket. As you can see, it gets a little complicated.
Do You Need the Money in 5 Years?
If you think you’ll need it in 5 years, you might be better off not converting. Or maybe you could convert less. And if you do need it in 5 years, will your taxes be higher or lower? Will tax law change?
Takeaway
A colleague of mine correctly states there’s more to money than money. The same can be said for Roth Conversions. Whether or not they make sense for you depends on a lot of different factors. If you’re considering a Roth Conversion, and you want help navigating some of the complexities around it, check out the FREE decision tree at www.iam-financial.com/resources.
