Autumn brings more than just turnkeys and pumpkins – it's also a prime season for Roth conversions and other End of The Year Tax Moves. For many tax-saving moves, Congress requires they be completed within the fiscal year, meaning we are in the crunch time leading up to the end of the year. So, while others are wondering about what new presents to buy for Christmas or Chanukah, you my savvy financial friends are diving into the intricacies of Roth conversions looking for last-minute savings. So, over the next few weeks, we are going to explore the depths of Roth Conversions and how to implement them properly.
Understanding the Basics of Roth Conversions
At the heart of the matter, the question isn't just "how much should I convert?" but "should I convert at all?" It's a critical distinction. For some, a Roth conversion is a clear-cut decision. For others, it could do more harm than good. And for many, the answer lies in a complex grey area that requires careful calculation and consideration.
Ideal Candidates for Roth Conversions
1. The Future Tax Bracket Concern: If your required minimum distributions (RMDs) in retirement will significantly exceed your income needs and potentially push you into a higher tax bracket, a Roth conversion can be a strategic move. Helping you not only reduce your RMDs, but stretching your savings over a longer period of time.2. Planning for the Surviving Spouse: Married couples often overlook the financial impact on the surviving spouse. The loss of one partner can result in a substantial increase in tax liabilities due to reduced tax brackets and Social Security benefits. Converting to a Roth IRA could mitigate this "survivor tax bomb."
Navigating the Grey Area
For those not fitting neatly into these categories, a Roth conversion's benefits will depend on various factors, including projected RMDs, anticipated returns on retirement accounts, and anticipated future taxes. It's not about hitting a specific account balance but about assessing your unique financial landscape. There really are no hard and fast rules about who should convert or how much to convert. Anyone telling you otherwise is either naive or a salesperson utterly convinced that Roth Conversions are the best thing since sliced bread.
A Holistic Approach to Roth Conversions
As I am often fond of saying, Roth Conversions is like trying to do calculus. Simple arithmetic and back-of-the-napkin math, will often lead to poor outcomes. In my experience, the key to deciding on a Roth conversion lies in taking a holistic view. You need to analyze your income sources in retirement, project your growth, and estimate future taxes. Often the deciding factor is seeing how Roth Conversions affect your income or savings under a variety of what/if scenarios. Consider:- Your tax bracket now and in the future.- The potential growth of the money used to pay conversion taxes.- The long-term financial security implications.- The lost growth from paying taxes now- The probability of taxes increasing for YOU in the future (we know that taxes will probably increase..but that doesn't mean the increase will be spread evenly across the board. In all likelihood, it will be the middle-income wage earners who get taxed the most. Will that be you in retirement?)
Yields for You: A Resource for Navigating Roth Conversions
You don't have to solve this question on your own. We have a number of free resources to help you, including:

How to Pay Zero in Taxes in Retirement Class - Every Wednesday for the Month of December
Free Guides and Resources Here
*New* Roth Conversion Calculator - Signup For FREE Beta Access

We are also developing software to help map out different conversion scenarios, ensuring you make informed decisions about your Roth conversions. You can signup for FREE Beta Access here: https://leibelsternbach.typeform.com/to/mMzGSNnH
Next Week: How Much To Convert?
Join us next week as we delve deeper into how much to convert to Roth this year. We'll tackle q