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To Roth Or Not To Roth

A tax tsunami is coming at the end of this year. And this is the absolutely last chance for a massive Roth conversion.

As you likely have read here or elsewhere, the end of 2012 and the transition to 2013 are likely to be a tumultuous time for taxes of all sorts. Accordingly, this is a year of planning.

One major thing to bear in mind: This may be the last excellent year for the Roth IRA conversion.

Forbes recently ran a few articles on this subject, including this recent test. I thought I’d share it here to help you determine whether a Roth IRA conversion may be right for you. So, somewhat abridged, here it is:

  1. Do you expect your tax bill to stay the same well into retirement?
  2. Do you have a traditional IRA (especially a large one) that can be converted?
  3. Are you ready, willing, and able to pay for the taxes of tomorrow, today?
  4. Are you interested in estate-reduction and, at once, leaving a large tax-free gift to your heirs?

If you answered “yes” to the above questions, then you may want to put pencil to paper and assess whether a Roth IRA can make sense and, more to the point, can create a huge savings now and a huge value for your heirs later.

The big payoff: A Roth IRA is not a tax-deferred account as retirement accounts traditionally are. The reason a tax-deferred account is nice is that it’s assumed you’ll have a lower income in retirement and, therefore, have a lower tax percentage. As a result, you allow the account to appreciate now and ultimately pay fewer taxes later.

If your income is not expected to drop, as is often the case, then your tax bracket might not drop and so your tax savings won’t appear. Instead, you’ll have less liquidity during the golden years.

By paying the taxes upfront, by rolling a traditional IRA into a Roth, you’ll pay a tax upfront to secure that account for the future and avoid any RMD’s (the very same that might force you into other tax problems).

Moreover, since taxes are generally expected to go up with the expiration of the Bush-era tax cuts (unless some serious attention is given and quickly) paying the tax now might be an actual steal.

There is more information in the original article, and my previous posts on this subject.

Reference: Forbes (February 20, 2012) “Roth IRS Conversion 2012: Are You A Good Candidate? 

As you likely have read here or elsewhere, the end of 2012 and the transition to 2013 are likely to be a tumultuous time for taxes of all sorts. Accordingly, this is a year of planning.

One major thing to bear in mind: This may be the last excellent year for the Roth IRA conversion.

Forbes recently ran a few articles on this subject, including this recent test. I thought I’d share it here to help you determine whether a Roth IRA conversion may be right for you. So, somewhat abridged, here it is:

1.      Do you expect your tax bill to stay the same well into retirement?

2.      Do you have a traditional IRA (especially a large one) that can be converted?

3.      Are you ready, willing, and able to pay for the taxes of tomorrow, today?

4.      Are you interested in estate-reduction and, at once, leaving a large tax-free gift to your heirs?

If you answered “yes” to the above questions, then you may want to put pencil to paper and assess whether a Roth IRA can make sense and, more to the point, can create a huge savings now and a huge value for your heirs later.

The big payoff: A Roth IRA is not a tax-deferred account as retirement accounts traditionally are. The reason a tax-deferred account is nice is that it’s assumed you’ll have a lower income in retirement and, therefore, have a lower tax percentage. As a result, you allow the account to appreciate now and ultimately pay fewer taxes later.

If your income is not expected to drop, as is often the case, then your tax bracket might not drop and so your tax savings won’t appear. Instead, you’ll have less liquidity during the golden years.

By paying the taxes upfront, by rolling a traditional IRA into a Roth, you’ll pay a tax upfront to secure that account for the future and avoid any RMD’s (the very same that might force you into other tax problems).

Moreover, since taxes are generally expected to go up with the expiration of the Bush-era tax cuts (unless some serious attention is given and quickly) paying the tax now might be an actual steal.

There is more information in the original article, and my previous posts on this subject.

Reference: Forbes (February 20, 2012) “Roth IRS Conversion 2012: Are You A Good Candidate?

 

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The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.