Episode 80: What is the Strategy Behind a Roth Conversion?

Today’s Prep:

If you think a Roth conversion might be the right thing for you, how do you do it correctly? Creating a strategic plan for your conversion can make a significant difference in your finances and we’ll discuss the reasons many people are choosing to make this move.

(Click the featured times below to jump forward in the episode)

Equipping Points:

On today’s episode we hope to give enough detail to understand what a Roth conversion strategy is and whether it might make sense for you. The goal ultimately being to pay less in taxes in the future.

What happens when you reach the age of RMDs? The tax-deferred account that has been growing over time will require distributions. That also means you’ll have to start paying the taxes on those distributions. Making a Roth conversion now, when the tax rates are presumably lower, there’s an area of opportunity.

It wasn’t that long ago that our tax rates are double what they are today. So, it’s not a far-fetched conclusion that taxes will go up for everybody in the future. Once you get money into a Roth, it’s tax-free to withdraw from it in retirement. Another benefit is that you’re not required to take the money out at a certain age. Then, whoever inherits that money doesn’t pay taxes on it either.

The price of admission is paying the taxes now instead of later. Why wouldn’t somebody choose to do that? If you believe that your tax rates will be lower in the future, you might want to wait until later.

The smartest way to proceed is to have a calculated strategy to do the Roth conversion at the lowest tax rate possible. Make sure it’s not just one big conversion, but you implement a strategy regarding how much to convert each year. Otherwise, you might be paying big time when it comes to your taxes or Medicare. Are you ready to do a Roth conversion?

Listen to the full episode or click on the timestamps below to hear more.

[1:14] – What is the strategy behind a Roth conversion?

[3:47] – What is a Roth conversion?

[6:11] – The longer your account grows tax-deferred, the bigger the account.

[8:48] – It’s possible that the tax rates will go up in the future.

[14:34] – How does this strategy relate to Medicare?  

[16:02] – Consider your retirement plans and where the country is going


More From David:

The host: David Dickens

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