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Transferring some of your retirement savings from a tax-deferred account like a 401(k) to a Roth IRA can help you reduce or possibly avoid required minimum distributions (RMDs) and income taxes later on. It can also be beneficial if you want to leave tax-free savings to your heirs. A Roth conversion can therefore provide you with some flexibility when tax planning your finances in retirement.
However, you can't escape paying income taxes on your tax-deferred savings entirely, and converting 25% of a large 401(k) could lead to a sizable tax bill you'll have to pay right now. You may want to consider a conversion strategy based on keeping you from entering a higher marginal income tax bracket rather than converting a set percentage, although other timing factors may come into play.
Here are some factors to think about. You can also get matched with a financial advisor for free if you need help developing a 401(k) conversion plan that will balance present and future tax consequences.
Because Roth accounts are not subject to the required minimum distribution (RMD) rules that apply to 401(k) accounts, a retirement saver may want to consider converting funds from a 401(k) to a Roth IRA. Under RMD rules, funds left in a 401(k) or similar tax-deferred account have to be withdrawn on a strict schedule starting at age 73 or 75, depending on your birth year.
#conversion
Transferring some of your retirement savings from a tax-deferred account like a 401(k) to a Roth IRA can help you reduce or possibly avoid required minimum distributions (RMDs) and income taxes later on. It can also be beneficial if you want to leave tax-free savings to your heirs. A Roth conversion can therefore provide you with some flexibility when tax planning your finances in retirement.
However, you can't escape paying income taxes on your tax-deferred savings entirely, and converting 25% of a large 401(k) could lead to a sizable tax bill you'll have to pay right now. You may want to consider a conversion strategy based on keeping you from entering a higher marginal income tax bracket rather than converting a set percentage, although other timing factors may come into play.
Here are some factors to think about. You can also get matched with a financial advisor for free if you need help developing a 401(k) conversion plan that will balance present and future tax consequences.
Because Roth accounts are not subject to the required minimum distribution (RMD) rules that apply to 401(k) accounts, a retirement saver may want to consider converting funds from a 401(k) to a Roth IRA. Under RMD rules, funds left in a 401(k) or similar tax-deferred account have to be withdrawn on a strict schedule starting at age 73 or 75, depending on your birth year.
#conversion
5 days ago
