Roth IRA Conversion

Most Baby Boomers will recognize the cutting lyrics to the Beatles song Taxman. "If you drive a car, I'll tax the street. If you try to sit, I'll tax your seat. If it gets too cold, I'll tax the heat. If you take a walk, I"ll tax your feet....Taxman!" Back when that song was written, not everyone worried about running out of money or how to implement an effective and tax-efficient distribution plan for their retirement assets because they didn't have to.

That's no longer the case. In recent decades many employers have abandoned pensions and instead have turned to 401(k)s, shifting risks they once shouldered to their employees and their families.

We typically favor Roth IRAs (over Traditional IRA balances) as Roth IRAs have the potential to grow tax free and your withdrawals are also tax free, once certain conditions are satisfied. However, we believe that now more than ever you should consider doing a Roth conversion while the stock market is down. 

A lower stock market makes the Roth conversion strategy more appealing. This is because when your Traditional IRA account value decreases, you are able to convert the same number of shares at a lower cost. For example, let's say you have a Traditional IRA worth $1,000,000 and the value drops to $800,000. You can save on taxes by converting the lower value ($800,000) rather than the original higher value ($1,000,000). Please note this is just an example and you would not have to convert the entire amount of your Traditional IRA.* 

1. Let us know that you are interested. 
2. In order to run the Roth conversion analysis, we will need your 2021 tax return (If you haven't sent it to us already) It could be a smart thing to do with your money. If you are interested in performing a Roth conversion while the market is down, please let us know. Contact us and we'll arrange the most convenient way for you to send us your 2021 tax returns. This is an opportunity to take control of your investments and be proactive with a move that could result in lower taxes on your IRA.

* It is not my position to offer tax advice. We are not CPAs. Conversion examples given are for illustration purposes only. You should consult with your attorney or accountant regarding your own tax liabilities as well as your financial advisor who will look at your full financial picture and help you understand the benefits of ROTH IRAs.