A Pittsburgh Financial Advisor Describes What You Should Know About a Roth IRA Conversion
An effective strategy for evaluating retirement and estate planning options is to consider converting a traditional IRA to a Roth IRA. Revisiting Roth conversions may be appropriate due to recent market valuations given the volatile market decline.
Points to consider:
- Because of current market conditions, IRA portfolios have been devalued. Converting now would save tax dollars upon conversion and once the market recovers, those gains would be tax free (after 5 years).
- For the 2022 tax year, scheduled are lower marginal federal tax brackets until 2026, unless Congress changes the 2022 tax brackets through tax reform. It could be advantageous to convert given the lower tax rate.
- Non-spouse Designated Beneficiaries can allow an Inherited Roth IRA continue to grow, take the distribution in year 10 totally tax free.
- It’s best to pay the tax from a non-retirement account. Paying the tax out of IRA proceeds, could mean you would pay a 10% penalty on that portion of the IRA, if you are under 59½.
- If you are relocating to a state with no or lower state tax, a conversion may not be appropriate.
- The conversion may push you into higher tax bracket.
- If your employer has an account option, placing a portion of your 401K funds into a Roth IRA would be appropriate.
- Roth IRAs currently do not have a required minimum distribution requirement (RMD).
- Roth IRAS are presently income tax free upon distribution and are not subject to RMDs, there have been some efforts to limit Roth IRAs. Most notably, the $5 billion Roth IRA owned by founder Peter Theil, gave him the ability to exercise stock positions with no taxation. Laws in the future may change for taxpayers in higher tax brackets, they would be required to pay tax on Roth earnings or make RMDs.
Winthrop Partners is a wealth Manager and Advisor that has researched Roth conversions, pros and cons for many clients. Please call us for a complimentary discussion and assessment of your personal financial plans. Contact Brian Werner for a free consultation. 412-281-1470 [email protected]
WINTHROP PARTNERS is a Fee-Only Fiduciary and Wealth Advisor that provides Investment Management and Wealth Plans to individuals in Pittsburgh and Alleghany County.
Winthrop Partners l 101 East Swissvale Avenue Pittsburgh, PA 15218 l 412-281-1470 l WinthropPartners.com
Disclosures:
The views, opinions, and content presented herein are for informational purposes only. They are not intended to reflect a current or past recommendation; investment, legal, tax, or accounting advice of any kind; nor a solicitation of an offer to buy or sell any securities or investment services. Winthrop Partners does not provide tax advice or legal advice. Before taking any action, you should first consult with a tax or legal professional.
Brian Werner is a Managing Partner at Winthrop Partners. He has more than 25 years of experience in investments, financial planning, entrepreneurial ventures, corporate finance, and banking. Prior to joining Winthrop Partners, Brian was the First Vice President and a Senior Wealth Advisor for First Niagara, where he led the development of First Niagara’s Western Pennsylvania Private Client Services and served on its western Pennsylvania operating committee. He also held roles with PNC/National City, Greycourt Investment Advisors, and Linnco Future Group, Chicago Board of Trade. Brian is a Chartered Financial Analyst and Certified Financial Planner. He earned his MBA from Duquesne University, Magna Cum Laude.