7 Reasons to Start a Staged Roth IRA Conversion Plan

Are you looking for a way to maximize your retirement savings and minimize your tax bill? If so, you might want to consider starting a staged Roth IRA conversion plan. This strategy involves converting a portion of your traditional IRA or 401(k) assets into a Roth IRA over a period of several years. Here are seven reasons why a staged Roth IRA conversion plan could be a smart move for your retirement planning.

Eliminate Taxation on Future Growth of Converted Assets

By converting your traditional IRA or 401(k) assets to a Roth IRA, you can eliminate future taxation on the growth of those assets. This can lead to significant long-term savings and can help you avoid future tax increases or changes to the tax code.

Take Advantage of Low Federal Tax Rates Scheduled to Expire After 2025

The Tax Cuts and Jobs Act of 2017 lowered federal tax rates, which are scheduled to expire after 2025. By starting a staged Roth IRA conversion plan now, you can take advantage of these low tax rates and potentially reduce your future tax liability.

Reducing Required Minimum Distributions Beginning at Age 73.

Required minimum distributions (RMDs) are mandatory withdrawals from traditional IRA and 401(k) accounts starting at age 73 for individuals who have not reached age 70 ½ by the end of 2021. These withdrawals are subject to income tax and can increase your tax bill.  By converting some of your traditional IRA or 401(k) assets to a Roth IRA, you can reduce your future RMDs and potentially lower your future tax bill(s).

Potentially Reduce Medicare Part B Premiums

Medicare Part B premiums are based on your income, so reducing your taxable income in retirement can potentially lower your Medicare Part B premiums. By starting a staged Roth IRA conversion plan, you can lower your taxable income in retirement and potentially reduce your Medicare Part B premiums. 

Reduce Widow or Widower’s Income Tax Liability

If you pass away and leave a traditional IRA or 401(k) assets to your spouse, they will be required to take RMDs and pay income tax on those distributions. As a widow your new tax filing status becomes Single which offers less advantageous marginal tax rates and a reduced standard deduction, leading to higher potential tax liability. By converting some of your traditional IRA or 401(k) assets to a Roth IRA, you can potentially reduce your spouse’s future tax bill(s).

It doesn’t just stop there though. If you have children or heirs that are in a higher marginal tax rate, by completing Roth IRA conversions you’re limiting the future burden on your children who would be set to inherit your IRA or 401(k) assets and potentially be forced to distribute the assets within a 5 to 10 year period.

Reduce Dependency on Taxable Assets in Retirement

By converting some of your traditional IRA or 401(k) assets to a Roth IRA, you can reduce your dependency on taxable assets in retirement. This can provide greater financial security and flexibility in retirement.  Who doesn’t like greater control over their own assets and having to pay less taxes to Uncle Sam?!

Stay Focused on Retirement Income Planning

By starting a staged Roth IRA conversion plan, you can stay focused on your retirement income planning goal(s). This can help ensure that you have enough income to support your retirement lifestyle and that your retirement savings last as long s you need them to. 

In conclusion, a staged Roth IRA conversion plan can be a smart move for retirement planning. By eliminating future taxation on growth, taking advantage of low tax rates, reducing future RMDs, potentially reducing Medicare Part B premium, reducing future tax liability for your spouse, reducing dependency on taxable assets, and staying focused on retirement income planning, you can maximize your retirement savings and minimize your tax bill. It is recommended that you consult with a financial advisor or tax planning professional to determine if this strategy is right for you.

This article was originally published here and is republished on Wealthtender with permission.

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Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.