Converting a traditional IRA to a Roth can shield your retirement savings from future tax increases, but there are pitfalls and trapdoors, too. You’ll owe taxes on a conversion, and the up-front tax bill could be higher than you expected—particularly if the conversion pushes you into a higher tax bracket. If your income tax rate drops significantly after you retire, the tax advantages could be modest or nonexistent. And as with any financial transaction that intersects with the tax code, you—or your financial adviser—must comply with multiple rules and regulations to avoid running afoul of the IRS.
Because many people, including retirees, believe taxes will rise in the future, Roth conversions are “trendy,” says Evan Beach, a certified financial planner with Campbell Wealth Management, in Alexandria, Va. “But you see people get over enthusiastic about it, and they don’t know what they’re doing.”
Until recently, if you converted an IRA to a Roth, the law let you have a do-over. Before 2018, taxpayers who converted an IRA to a Roth had until the tax-extension deadline—typically October 15—of the year following the year they converted to change their minds. If you discovered after the fact that you couldn’t pay taxes on the conversion, you could simply put the money back into your traditional IRA and go about your business. Likewise, if the value of your IRA dropped significantly after you converted, you could undo the conversion and avoid paying taxes on phantom income.
Bu hikaye Kiplinger's Personal Finance dergisinin January 2021 sayısından alınmıştır.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber ? Giriş Yap
Bu hikaye Kiplinger's Personal Finance dergisinin January 2021 sayısından alınmıştır.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber? Giriş Yap
My Top 30 Index: An Update
A year ago, I put together what I called \"my own reinvention\" of the Dow Jones industrial average, the popular 142-year-old large-cap index.
Balance Your Risk and Reward
These new ETFs let you cut stock market losses. But you'll sacrifice some gains.
IS A HYBRID CAR RIGHT FOR YOU?
Hybrids offer a fuel-saving option for drivers who have reservations about all-electric vehicles. But there are trade-offs.
HOW TO REACH YOUR INVESTING GOALS
Patience helped these four investors make their portfolios work for them.
WHERE TO INVEST NOW
Expect a lot of midyear churn, with a rally toward the end of 2024.
TIPS FOR FINANCING A HOME PROJECT
I recently had a call with a client who was looking to fund the construction of a swimming pool at his house.
MORE WOMEN THAN EVER ARE STARTING BUSINESSES
Retail and travel businesses, along with health, beauty and fitness, are popular with women entrepreneurs.
Finding Home Health Care
It’s important to hire a caregiver you trust.
UNDERSTANDING BOND FUND YIELDS
What's a 30-day SEC yield? A trailing 12-month yield? A yield to maturity? We explain what each measure says about an income fund.
ANSWERS TO YOUR QUESTIONS ON STUDENT LOANS
If you have federal student loans, you may benefit from new government policies. Here's what you need to know.