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Need More Coupons - MyLivingMagazine.comAm I Eligible to Convert my Traditional IRA to a Roth IRA?

Converting your Traditional IRA to a Roth IRA can be one of the best nancial decisions made when saving for retirement if done correctly. Prior to 2010 there was an income limit that restricted the conversion to a Roth IRA if your (AGI) was over $100,000. As of 2013 the income limitation does not exist for a conversion, however it does still exist for contributions. is does not mean it will not come back in the future, but for 2013 and beyond anyone can convert an existing Traditional IRA to a Roth IRA regardless of income.

For example, someone has a Traditional IRA with $350,000 invested, that IRA can be converted to a Roth and all the taxes need to be paid for the tax year the conversion was completed. A er converting to a Roth, the money grows tax-free. Paying the taxes on this money now might sound like a tough pill to swallow, but the potential tax savings down the road can be signi cant. Wouldn’t you rather pay taxes on $350,000 now then pay taxes on $1,000,000 in the future? One of the keys to doing this correctly is paying the taxes with funds outside of a quali ed plan. Paying the taxes with money from the IRA defeats the purpose and will negate the full tax saving potential.

is is just one example of completing a Roth conversion. You can do partial conversions as well. is means you do not have to convert the entire account. You could develop a strategy of doing partial Roth conversions over multiple years. e key is to consult with your tax advisor or accountant to make sure the conversion will not put you into another tax bracket. Every dollar you convert is taxed at your ordinary income tax rate. is strategy works best for younger investors who have a longer time frame to allow the money to grow and compound over a long period of time. It can also work well for an older investor who is in a low tax bracket. Another reason to convert to a Roth is that Roth IRAs are not subject to the Required Minimum Distribution a er you reach age 72. For those of you out there that do not plan to use your IRA money to live this can be a huge advantage when it comes to passing along your IRA to your bene ciaries. Roth IRAs continue to grow tax-free a er the conversion and a er you die. ere are distribution requirements for the bene ciaries, but the distributions are tax-free as well.

is strategy might not be right for everyone. I would advise you to consult with a Certi ed Financial Planner™ or your tax advisor prior to taking advantage of this potentially large tax savings. One of the best times to complete a Roth conversion is when the value of your Traditional IRA has fallen due to a market correction. We took advantage of this strategy for many of our clients when the Covid 19 market sell o took place last year. is is just one of the value-added approaches we utilize for our clients.

If you have questions on this article or would like to schedule a free nancial review. Please contact Jay Chapman at 772-320-9658 or email Jay@ChapmanCapitalAdvisors.com.

Money Talks

by Jay Chapman, CFP®

All the opinions expressed in this article are that of the authors and should not be considered nancial advice for your individual portfolio.

If you would like to learn more about this topic or have your complimentary portfolio reviewed please contact Jay Chapman, CFP® at Chapman Capital Advisors

772-320-9658 or email Jay@ChapmanCapitalAdvisors.com

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