Roth IRAs provide valuable tax-free growth potential. One way to get assets into a Roth is through conversions from traditional IRAs. In our latest podcast, I explain Roth conversions and why now is an opportune time to consider them.

What is a Roth Conversion?

A Roth conversion involves moving money from a traditional IRA or old 401(k) into a Roth IRA. Unlike traditional IRAs, you don’t get a tax deduction for Roth contributions. However, qualified Roth withdrawals are tax-free in retirement.

Converting to a Roth requires paying income tax on the amount converted. However, there are no income limits on Roth conversions like there are on regular Roth contributions.

Roth Conversions and Tax Brackets

It’s critical to understand your federal income tax bracket when considering a Roth conversion. While your top marginal rate may be 22%, your effective tax rate on a conversion could be just 12% if you stay within your bracket.

Working with a financial advisor or accountant, you can determine the optimal conversion amount that avoids pushing you into a higher bracket. This allows you to convert at lowest possible rates.

Take Advantage of Today’s Low Rates

Current federal income tax rates are near generational lows. However, rates are scheduled to revert higher in 2025 when provisions expire. That makes now an opportune time to convert and lock in low taxes.

In addition, required minimum distributions don’t apply to Roth assets. So the more you can convert before age 72, the lower your future RMD tax bills will be.

For a full analysis of your personal tax situation and whether Roth conversions make sense, we’re here to help. Reach out to start the conversation.