Thinking about a Roth IRA conversion this year, but not sure if it makes sense?
Here are a few key points to keep in mind ✅
What a Roth conversion is:
🔹 Moving money from a pre-tax account, such as a traditional IRA, into a Roth IRA
🔹 The amount converted is typically taxable as ordinary income in the year of conversion
Why investors consider it:
🔹 May allow for tax-free growth and tax-free qualified withdrawals in retirement if certain requirements are met
🔹 Currently, there are no required minimum distributions for the original Roth owner under existing law
🔹 May provide more flexibility for heirs than a traditional IRA, depending on individual circumstances
How to potentially approach it:
🔹 Consider smaller, multi-year conversions instead of one large move
🔹 Monitor how added income may affect Adjusted Gross Income, tax brackets, and future Medicare premiums
🔹 Once converted, it generally cannot be reversed under current rules
Key considerations:
🔹 With a Roth IRA, to qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be taken under certain other circumstances.
🔹 With a traditional IRA, once you turn 73, you must take the required minimum distribution. Withdrawals are taxed as ordinary income and may be subject to a 10 percent federal income tax penalty if taken before age 59½.
Roth conversions may be a useful strategy when they align with an overall, personalized tax and retirement strategy. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. As always, consult a tax and financial professional before making any decisions. Cetera Wealth Services, LLC exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business. This information is not intended as tax or legal advice.