Episode 152: 7 Roth Conversion Misconceptions
Today’s Prep:
How much do you really know about Roth conversions? David walks us through common misconceptions and shares why Roth conversions may be worth considering before the end of the year.
Equipping Points:
If you’ve listened to this podcast in the past, you’ve probably heard David talk about Roth conversions. Today, we take a different angle and discuss the different misconceptions people may have when it comes to doing a Roth conversion and set the record straight.
While the year is coming to a close, you have a limited amount of time to do a Roth conversion. Sometimes misunderstood, a Roth contribution can be made until April 15th of next year, whereas a Roth conversion has to be done within the year it is effective. If you had planned to do a Roth conversion in 2021, this is probably the week to do it.
Who is a Roth conversion for? Anybody can do a Roth conversion. It doesn’t matter your earned income or age, as long as you have an IRA you can do a Roth conversion. You may or may not want to do a Roth conversion depending on your situation, but you do have the option.
With an IRA contribution, there are limits to how much you contribute. With a Roth conversion, there are no limits, but there is a certain wisdom to how much you might want to do based on your situation and taxes. When do you a Roth conversion, you don’t need to be worried about being penalized by moving the money from an IRA. The conversion is not penalized, even if you’re under 59 and a half.
So, when will you pay the taxes? David explains how he recently helped a client do a Roth conversion in a way that helps pay the taxes next year. It’s important to keep in mind that partial conversions are allowed. Everybody’s situation is different, so you want to make sure you look at what the smartest way to make a Roth conversion over time. You also want to consider whether or not you have to pay a penalty rate on your Medicare premium. You might be able to avoid this, but it’s important to take it all into account as you pursue a Roth conversion.
Reach out to a financial advisor to see what makes the most sense for you and your financial situation.
Listen to the full episode or skip around to certain topics.
0:33 - Christmas is coming!
2:11 - How soon do you need to do a Roth conversion?
3:54 - Who can do a Roth conversion?
4:54 - What are the conversion limits?
6:00 - Can you convert a beneficiary IRA into a Roth?
7:58 - There is no penalty for doing a Roth conversion.
10:31 - When will you pay the taxes?
12:33 - Can you do a partial conversion?
Today’s Takeaway:
“Do I do it all in 2021 or should I do it over time? The answer to that is: How can you structure it such that you pay the least amount of tax on each conversion? "
– David Dickens
KC Financial Advisors Blog


