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  • Writer's pictureC Garrett Moore, CFP®

Roth Conversions: A Tax-Saving Strategy for Retirement

If you're like most people, you're probably concerned about how you're going to pay for retirement. One way to save money on taxes in retirement is to convert your Traditional IRA to a Roth IRA.


A Roth IRA is a very powerful type of retirement account that allows you to withdraw your money completely tax-free in retirement. Withdrawals from a Traditional IRA, in contrast, are subject to ordinary income taxation.


The process of converting some, or all, of your Traditional IRA into a Roth IRA is known as a Roth conversion.


There are a few things to keep in mind when converting your Traditional IRA to a Roth IRA.


First, you'll have to pay taxes on the amount that you convert in any given year. Depending on your income, this can be handled strategically by only converting an amount that will still keep you in the lower tax brackets.


Second, if you're under age 59½, you will generally want to have separate cash available to pay the tax bill, as using money from the IRA account itself will trigger the 10% early withdrawal penalty.


However, if these hurdles can be handled strategically, Roth Conversions can be a fantastic tool for a few key reasons:


1) Roth IRA's are not subject to Required Minimum Distributions, which is great if you do not plan on wanting or needing the income.


2) Roth IRA's open up the possibility of using a tax-location strategy with your investments, in which you place your equities in your Roth IRA, and your fixed income in your Traditional IRA.


3) Your beneficiaries won't pay tax on their withdrawals either, so long as the account has been open for 5 years, making it a fantastic wealth transfer tool.


4) Finally, you might be able to pursue a "backdoor Roth contribution" strategy to get money into a Roth IRA even if you are not legally allowed to make direct contributions.


Overall, converting your Traditional IRA to a Roth IRA can be a great way to save money on taxes in retirement. If you'd like to explore the appropriateness of this strategy for yourself, feel free to book some time with me below.

Moore Financial Management, Inc. is an Investment Adviser registered with the State of Florida. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request. This information is believed to be accurate as of its posting, but cannot be guaranteed. This information is for educational purposes only and is not personalized advice. Do not act on any of this without first consulting with appropriate financial, tax and legal advisors.


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