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Disclosure: Orion Capital Management LLC (“Orion”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC). The firm offers advisory services in the State of California and in other jurisdictions where registered or exempted. Registration does not imply a certain level of skill or training. The information on Orion’s website or in its distributed commentary shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons or entities of another jurisdiction unless otherwise permitted by statute. Orion’s individualized responses to consumers in a particular state in the rendering of personalized investment advice for compensation shall not be made without the firm first complying with jurisdiction requirements or pursuant to an applicable state exemption.
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It’s a Great Time to Consider Roth Conversions
With the end of 2021 approaching, and with historically low tax rates likely to increase, now is an excellent time to consider a Roth conversion. However, the rules can be complex, so it is important to check out all the angles before acting.
What is a Roth Conversion?
A Roth conversion occurs when an individual moves (“converts”) money from a tax-deferred Traditional IRA into a tax-free Roth IRA. As a reminder, a traditional IRA, as a tax-deferred account, must ultimately distribute and pay tax on its assets. A Roth, however, is funded with after-tax money. It is tax-free and has no distribution requirement.
By converting IRA assets to Roth IRA assets, you will have to pay tax on the amount of the conversion in the year of the conversion. Once the assets are in a Roth IRA, however, they can grow tax-free forever (at least that’s the rule for now). With a traditional IRA, owners are forced to begin taking taxable distributions once they turn 72. Roth IRAs simply offer more flexibility.
Four Signs That You Should Consider a Roth Conversion
Consider Your Overall Financial Situation First
While Roth conversions make sense for many people, they do not make sense in every circumstance. Each person must consider their own specific financial circumstances to figure out if a Roth conversion is desirable. For example, because a Roth conversion increases your taxable income that year, it may push you into a higher tax bracket or affect things like Medicare Part B surcharges.
As always, when it comes to making financial moves, what’s right for one person’s situation may not be right for someone else. Please contact us if you would like to discuss Roth conversions or other financial strategies with us.
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