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We’ve been gabbing on over the last two weeks about IRAs because they’re a great way to save for retirement and to receive tax benefits. The very nature of a “tax benefit” is to pay less tax. In addition to making contributions, there may be another tax-saving strategy with IRAs worth exploring: a Roth conversion.
A Roth conversion is the process of transferring (converting) all or part of the investments in your Traditional IRA to a Roth IRA. Generally, any amount converted will be subject to income tax. Yes, we said it – pay tax – but, the goal is to pay tax now so that you don’t have to pay later.
A Roth conversion makes the most sense if: (1) You believe you will be in a lower tax bracket now than in the future, and (2) you have sufficient funds outside of your IRAs to pay the income tax due, and (3) the conversion amount doesn’t bump you into a higher tax bracket. Conversion can be worthwhile, but as is the case with all things tax related, the devil is in the details.
So, be sure to get professional help! Contact us if you’re not sure where else to go…The Senses are here to help.