Is Now the Time to Convert to a Roth IRA?

Roman poet Horace penned the famous phrase, “carpe diem” – seize the day. Could 2019 be the year to seize the Roth? A Roth IRA can be a valuable asset in retirement because qualified distributions are not taxed, unlike distributions from a traditional IRA.  Roth IRAs are also not subject to required minimum distributions, (RMDs) so funds can continue to grow tax free, and the remaining balance can be passed onto a beneficiary. If lowering your tax burden or passing on tax free wealth is a retirement goal, you may want to consider converting to a Roth this year.

A Roth IRA conversion is a significant decision, as conversions are now irreversible. Also, you will have to pay taxes on the conversion, and the bigger the conversion the more you pay. However, you don’t have to convert the entirety of the funds at once. The market volatility at the end of 2018 might have reduced the value of your IRA, in which case a Roth conversion now would mean a lower tax burden. Market performance this year is an important factor to consider if you’re thinking about a Roth conversion.

It’s also important to consider that the Tax Cut and Jobs Act lowered tax rates – and that these lower rates probably won’t be around forever. Most will see tax hikes come 2025. If you expect to pay higher taxes in the future for this reason, or others such as relocation or increased income level, a conversion now could be the move, as distributions from a traditional IRA will be taxed at those higher levels later on. This is also important to consider if you plan on passing on your retirement account to a beneficiary, as higher taxes in the future means a higher tax burden on your beneficiary.

2019 could be a good year to make the conversion. If your IRA sustained losses in the recent bout of market volatility, or you are worried about your tax burden in the future, converting to a Roth could help to minimize the damage by allowing funds more time to grow tax free, as they are not subject to RMDs or taxes if they are withdrawn. A Roth IRA could be a very valuable asset in retirement strategies for high-income earners, especially if you want to lower your tax burden or pass on tax free wealth to a loved one. Will you seize this opportunity in 2019?

Before making an important financial decision like a Roth conversion, talk to the professionals at Peak Financial Freedom Group. We can help you create a comprehensive plan that makes the most of your retirement accounts. Click here to schedule your no cost, no obligation financial review.