How Can You Benefit From Roth IRA Conversion?
A Roth IRA conversion can have several potential benefits.
a. Roth IRAs are not subject to RMDs.
For people who don’t need the RMD income in retirement, this can result in tax savings each year. Additionally, this allows the value of the account to remain intact and potentially continue to grow over time. A Roth IRA can be a powerful estate planning vehicle for leaving money to a spouse or heirs.
b. A Roth IRA can provide you with tax diversification in retirement.
This can be beneficial as we don’t know what direction tax rates will take in the future. At the time of this writing, we are on the cusp of a new presidential administration. Many speculate that President Joe Biden will look to raise taxes over the next few years. A Roth IRA conversion can act as a hedge against future tax rate hikes. Having retirement savings in both Roth and traditional retirement accounts can provide flexibility for you to formulate a retirement withdrawal strategy.
In general, the decision regarding a Roth IRA conversion is often about your current tax situation versus your anticipated future tax situation. With multiple income sources like pensions, withdrawals from retirement accounts and Social Security, it’s not uncommon for you to end up in a higher tax bracket in retirement than you were while you were working.
In next blogpost, we will discuss a few issues to note in Roth IRA conversion.