There’s never been a better time to convert to a Roth

Do you have a traditional IRA or 401K? Have you considered converting your retirement accounts into a Roth, but aren’t clear about the advantages? Outlined below are the most important benefits of converting a traditional IRA or 401K into a Roth. Plus, you’ll discover why the timing of a Roth conversion before the end of the year could be more favorable than ever before.

Tax-free growth and withdrawals

One of the most significant advantages of converting to a Roth is tax-free withdrawals and growth. With a traditional IRA or 401K, you get a tax break on your contributions. But you owe taxes when you withdraw this money in retirement. Many people forget to account for those taxes. When you convert your traditional IRA or 401K to a Roth, you pay the taxes up front, but any future withdrawals and earnings are tax-free. By converting to a Roth now, you benefit from tax-free growth for what could be decades to come. As your investments appreciate over time, you’ll save a substantial amount of money by not having to pay taxes on those gains when you withdraw them in retirement.

No Required Minimum Distributions (RMDs)

Traditional IRAs and 401Ks come with one significant drawback: required minimum distributions, or “RMDs.” When you turn 73 years old, RMDs kick in and you’re forced to withdraw a specific percentage of your account balance every year, regardless of whether you need the money or not. You must take the required minimum distributions until your account is depleted or you pass away — whichever comes first. This may not seem like a big deal on the surface, but RMDs could push you into a higher tax bracket and force you to sell investments at a loss. But with a Roth conversion, the money inside your account is no longer subject to RMDs. So, you maintain more control over your retirement savings and your money grows tax-free. This can be especially advantageous if you don’t need immediate access to your retirement funds and want to leave a legacy for your spouse or children.

Tax diversification

A key strategy with any financial game plan is diversification — more specifically, tax diversification. Converting your traditional IRA or 401K to a Roth offers tax diversification by providing a source of tax-free income in retirement. Having a mix of taxable, tax-deferred, and tax-free income can help protect you from changing tax laws in retirement. It also allows you to make more strategic decisions about how and when to withdraw funds to reduce your taxes in retirement.

Hedge against higher future taxes

The news didn’t make a lot of headlines, but our country just surpassed $33 trillion in national debt. At the same time, Federal income tax rates are still at 40-year lows. So what do you get when you have record-high national debt and decades-low taxes? You have the perfect recipe for the government to raise taxes. And many tax experts and economists agree that higher taxes could be just around the corner. If you decide to keep your money in a traditional IRA or 401K, you will likely be impacted by any future tax increases. And these higher taxes could obviously take a bigger chunk of your retirement savings. But if you convert to a Roth now, you will be insulating your savings from any future tax hikes. This can be especially valuable if you’re in a higher tax bracket during retirement or worried about the long-term sustainability of low tax rates.

Greater financial flexibility

Finally, a Roth account offers greater financial flexibility in retirement. Because your contributions have already been taxed, you can withdraw money at any time, penalty-free. So if you get hit with an unexpected expense or emergency, you can tap into your Roth savings without worrying about additional tax penalties. A Roth account could also be an excellent way to reduce your taxes in retirement. You can strategically withdraw funds to minimize your taxes so you can optimize your overall retirement savings.

Learn how your money could go further in retirement

Converting your traditional IRA or 401K into a Roth is just one of many critical pieces of a bulletproof retirement game plan. That’s why B.O.S.S Retirement Solutions is inviting you to a free, educational event with retirement expert Tom Hegna. It happens Thursday, October 12 at 6:30 p.m. in Sandy. Tom Hegna is an economist, a published author of five retirement planning books, and he’s been featured in Forbes, Yahoo Finance, PBS, CNN, and others. Tom will share seven steps that could make your money go a lot further in retirement, including reducing your taxes, optimizing Social Security, generating income, paying for healthcare, and so much more. This event is for guests 55 or older and who have saved at least $200k for retirement. Given the challenges with the economy today, the timing of this event couldn’t be better. We hope you can join us!