A Roth conversion might make sense in years when your taxable income is lower than usual—say, if you’ve retired but haven’t started taking Social Security or pension income yet. It can also be a great move if you expect to be in a higher tax bracket in retirement. By paying taxes now at a lower rate, you could avoid paying more later.

Another smart time? When the markets are down. Converting assets while their value is lower means you’ll owe less in taxes, and any rebound in value happens tax-free in the Roth IRA.

A Roth conversion could be a good fit if:

• You expect to be in a higher tax bracket in the future.

• You have cash on hand to pay the taxes owed on the conversion (pro tip: don’t dip into the IRA to cover the taxes—this can trigger penalties if you’re under 59½).

• You want to reduce the size of your taxable estate or minimize required minimum distributions (RMDs) down the road.

But, some people should steer clear. It’s probably not the right move if:

• You’re already in a high tax bracket and a conversion would push you even higher.

• You don’t have the cash to cover the tax bill.

• You’re close to needing the funds. Roth IRAs work best with a long-term horizon.
  

If a Roth conversion is something you are considering, speak with a financial planner and a tax professional to help you crunch the numbers, weigh the pros and cons, and decide if a Roth conversion is the right move for your unique situation.

Disclosure:

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies. Investing involves risks including possible loss of principal. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Gordon Haas is a Financial Planner with and offers securities and investment advisory services through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial. LPLE and LPL Financial are not affiliated with Haas Wealth Strategies.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes.

The purchase of certain securities may be required to effect some of the strategies. Investing involves risks including possible loss of principal. Individual tax and legal matters should be discussed with your tax or legal professional. Gordon Haas is not registered as a broker-dealer or investment advisor.