Tax Tip: Roth Conversions Aren’t One Size Fits All – Bloomberg Tax

Is now the right time to consider a Roth conversion? With a deadline of Dec. 31, time is running out for this year. While there are several advantages to converting, it is not a one-size-fits-all solution. It’s best to discuss your options with a financial adviser to learn if this strategy is right for your needs. But here are advantages to consider.

First, Roth conversions involve a pre-payment of tax. Paying taxes now acts as a hedge against future tax rate increases. Year-end is a good time to project tax brackets and estimate how much additional income could be added before moving up to the next bracket. Remember: Most taxpayers need to pay the tax due on a Roth conversion by April 15, 2022.

Second, you’re mandated by the IRS to withdraw a required minimum distribution—RMD—from a traditional IRA or qualified employer-sponsored retirement plan every year. If you have, or are anticipating, an RMD amount which exceeds your current spending needs, moving retirement assets to a Roth IRA will help reduce your future RMDs and support legacy planning for the future.

While there’s been discussion in Congress about backdoor Roth IRA being on the chopping block, traditional Roth conversions do not seem to be at risk.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Mike Repak is a vice president and senior estate planner at Janney Montgomery Scott LLC. He provides assistance in all aspects of financial, tax, and estate planning issues to Janney’s financial advisors and their clients. Prior to joining Janney, Repak had a solo law practice concentrating in elder law and estate planning. He has been an adjunct professor in the MBA program at Temple University and is a sought-after speaker for professional conferences and events. He is also frequently featured as a Money Doctor on www.360financialliteracy.org, the public education site of the American Institute of Certified Public Accountants.

We’d love to hear your smart, original take: Write for Us.