Roth IRA Conversions: What You Need to Know
I’m Angela Dorsey, founder and financial advisor at Dorsey Wealth Management.
My goal is to support and empower my clients so they can enjoy retirement without financial worry.
One strategy we use to make that a reality is using Roth IRAs to help you control your future taxes and maximize your growth.
Why Roth IRAs
Roth IRAs are an incredible tool to have in retirement
Unlike a traditional IRA, with a Roth, you contribute after-tax dollars, so you do not get an immediate tax deduction.
But not only does your money grow tax-free, but when it’s time to withdraw the money, you do not have to pay any taxes on your contributions or the gains.
But most high-income earners don’t qualify for a Roth IRA. As of 2022, you’re not eligible to contribute to a Roth IRA if you make at least $144,000 as an individual or $214,000 as a married couple.
Thankfully, you can still enjoy the tax perks that come with a Roth IRA if your income is over these limits—through a Roth conversion.
How Roth IRA Conversions Work
A Roth IRA conversion is when you invest in a traditional IRA, then eventually move funds into a Roth IRA, paying income tax on the amount you convert and allowing it to grow tax-free from that point on.
You should work with your financial planner or CPA to develop a strategy to convert your tax-deferred accounts into Roth IRAs without pushing you into the next tax bracket.
What About RMDs
Another benefit of a Roth IRA is that there are no required minimum distributions (RMDs).
If you have other resources and do not need to draw from your accounts after age 72, you are still required to withdraw money from your traditional IRA.
Roth IRAs As a Legacy Tool
If you are planning to leave money for your children or grandchildren, a Roth IRA account is a great gift!
Anyone who inherits a Roth IRA from a parent eventually will have to withdraw all of the money from the account within 10 years but in most cases, withdrawals will be tax-free. What a gift – a source of tax-free income for your children!
We Can Help
At Dorsey Wealth Management, we will look closely at your tax returns and income and develop a strategy to convert your tax-deferred accounts into Roth IRAs without pushing you into the next tax bracket.
Taking proactive steps now could benefit you and future generations down the road.
We’re happy to answer your questions. Visit our website to learn more about our firm.