The Powerful Benefits of Roth Conversions
This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend Reading
You want to minimize Uncle Sam’s share of your savings, but what exact role can Roth conversions have in helping you get there? First, it’s helpful to understand the nuanced interactions between ordinary income, capital gains, and Social Security taxation.
READ THE ARTICLEHere’s what you should know:
📌 Tax interactions: The interplay between your retirement income sources can lead to different tax outcomes. For example, your Social Security benefits may not be taxable until you start taking distributions from a Traditional IRA, which can increase your overall tax burden.
📌 Tax implications: Per a scenario in the article, Roth converters paid significantly lower effective tax rates throughout retirement (13.9 percent) compared to other scenarios, allowing them to leave a larger tax-free inheritance
📌 Considerations for heirs: While leaving traditional assets to heirs can be beneficial, you incur taxes when withdrawing from these accounts
📌 IRMAA considerations: Roth conversions can help mitigate Medicare's Income-Related Monthly Adjustment Amount (IRMAA) by shifting taxable income to lower-earning years
Key Takeaways: To help minimize your tax burden in retirement, it’s vital to be proactive with tax planning. This includes carefully planning Roth conversions at opportune times for you.