[VIDEO] When Does a Roth Conversion Make Sense?

With a traditional IRA, you may qualify for a tax deduction when you invest your money. But later, when you take the money out in retirement, all those distributions are taxed. The Roth IRA is the opposite. It has no deduction when you put the money in, but later, all distributions are tax-free when you take the money out during retirement.

By converting from a traditional IRA to a Roth IRA, future gains become tax-free. But when you convert funds from a traditional IRA to a Roth IRA, you must pay taxes on the converted amount that year. You can choose to convert all or just part of a traditional IRA to a Roth IRA.

Timing should be based upon when you are in a lower tax bracket or have other offsetting deductions. We can help you gauge the costs and benefits of a Roth conversion in your situation. Beware of penalties if you may need to tap into your Roth IRA funds in the next five years and you are or will be younger than age 59.5 when you need these funds.

It’s important that all investment titling and beneficiary designations are working in concert with your will or other estate planning documents. Speak with your estate and tax planning professionals to evaluate any potential tax ramifications and call us today to learn more about strategies and resources that may help you preserve your nest egg.

Want more on this topic? Read these:

Roth IRAs Are Not for Everyone. Here’s Who They Are For

Just Inherited a Retirement Account from a Loved One? Here’s How to Keep the IRS from Taking Half

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The views expressed in this commentary are subject to change based on market and other conditions. This video may contain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Malcolm Ethridge, CFP® is the Managing Partner of Capital Area Planning Group based in Washington, DC. He is also the Managing Partner of Capital Area Tax Consultants. 

Malcolm’s areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits. 

 Disclosures:

The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your legal advisors before taking any action that could have tax and legal consequences.

Investments in securities and insurance products are:

NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE