Roth IRA Conversions

Hi this is Dave Zaegel.

Today, let’s talk about Roth IRA conversions and how they can be tremendously beneficial to you for long-term planning.

First, what the heck’s a Roth IRA conversion? Most people have no idea what I’m even talking about when I say Roth IRA conversion.

What it is, is taking money from a traditional IRA and moving it over to a Roth IRA.

And what you do in that process is you pay taxes now, but you don’t pay any penalty for taking the money out of your traditional IRA.

So let’s back up a step.

When we put money into a traditional IRA, we are getting a tax deduction in the year we make the contribution.

But then when we take the money out in retirement, we pay tax on that.

So what we’re doing here is we’re saying, I’m going to go ahead and pay the tax now and convert it to a Roth IRA.

And a lot of people would say, “What the heck am I gonna…” Why am I gonna pay taxes now? “Why not just wait until as long as I can ” till I have to retire and then pay the tax?”

Well in today’s low tax-rate environment it might make some sense to pay the taxes now and then let the money grow, and grow, and grow in a Roth IRA, where we are not taxed on any distributions in retirement.

So keep that in mind. When the money’s in a Roth IRA, you do not pay taxes on distributions in retirement.

By moving the money from a traditional IRA now over to a Roth IRA, yes, we’re gonna pay taxes now, but it’s at relatively low tax rates historically.

And who knows what they’re going to be by the time we are retired and taking the money out.

This is a great way to help yourself long term, save money on taxes, by paying now while the rates are low and then not paying in retirement.

One word of caution is we typically want to convert this over time.

What does that mean?

That means we don’t want to, generally, take all of our money from a traditional IRA and shove it to a Roth IRA in one year.

There’s some situations where it might make sense.

If you lost a job, or didn’t have income for awhile, or if you own a business and you had a rough year, and you have some room to where you can absorb some extra income, that might make sense then to put all of the money into the Roth IRA and do that conversion in one year.

But typically, we want to move it in smaller pieces.

That way we don’t have one big tax hit in any one year.

We can absorb smaller tax hits and keep our tax rates low as we convert this over time.

Well I hope this helps give you an idea of how this can be tremendously beneficial by going ahead and paying the taxes earlier and letting the Roth IRA grow over time, especially while tax rates are relatively low.

If you need our help doing this, we’re happy to help.

If you just have questions, or thoughts, or comments, or anything else related to retirements or tax planning, just leave me a comment or just message me directly, and I’d be happy to help.

Thanks for watching.


Retirement Planning

In retirement, we will likely encounter critical financial challenges: rising interest rates, continued stock market fluctuations, and rising tax rates. All of these are manageable with proper planning, strategies, and tactics. We present answers to these challenges in ways that you won’t often hear from other advisors.   Think investing in bonds is the ultimate

Read More »
Tax Planning

They Gotcha Going Out – Estate Taxes

When you die, your estate may be subject to estate taxes. Want to know how much the federal government receives in estate taxes? Check out this video to learn more. Facebook Twitter LinkedIn Google+ Shares

Read More »
Tax Planning

Federal Tax Explanations – Video 1 – Overview

Want to know how much tax revenue the federal government receives and where it comes from? I’ve made it a goal to help educate people on the big picture of federal taxes. That way, you can have a greater understanding of how much the government receives, where it comes from, what truly makes a difference,

Read More »
Retirement Planning

The Power of Roth Conversions for Retirement

When we plan for retirement, one of the strategies that can be counter-intuitive, but extremely powerful is looking at Roth IRA conversions, especially in the early years of retirement. When I say it can be counter-intuitive, it’s hard to think about paying a lot of taxes now to save on taxes later. A lot of

Read More »
Business Planning

Profit Sharing Bonanza

Profit sharing plans can be a big deal for successful business owners. Many successful business owners will use profit sharing plans because it has a big impact on their financials in multiple different ways, especially among more white collar business owners that have been successful is. Think of doctors, lawyers, dentists, therapists, chiropractors. The list

Read More »
Business Planning

LLC Does Not Matter for Tax

We get a lot of questions about what type of business entity I should use for my business because there are lots of different options. You have C corporation, S corporation, partnership, sole proprietorship, LLC which stands for limited liability company. So people are always asking, what’s the best one to use? How should I

Read More »
Business Planning

Don’t Let Your Business Die

Let’s talk about a topic that is not necessarily fun to talk about, but it is important to talk about. If you’re owning a business, what happens if you die? And the reason we’re discussing this is because most people are familiar with life insurance. If you’re collecting a paycheck, you want life insurance for

Read More »

Pin It on Pinterest