Sjoberg & Tebelius, P.A. | Attorneys And Counselors At Law

Serving Minnesota & Western Wisconsin: 651-315-8856

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Sjoberg & Tebelius, P.A. | Attorneys And Counselors At Law
651-315-8856

Anticipating Your Needs, Exceeding Your Expectations

Sjoberg & Tebelius, P.A.

Should You Convert To A Roth IRA?

Everyone, regardless of gross income, is eligible to convert their traditional IRA to a Roth IRA. Here are some of the benefits of making that conversion:

  • Tax-free growth and withdrawals. Once converted to a Roth IRA, your money grows tax-free. Qualified withdrawals (after age 59½ and after the 5-year rule) are completely tax-free, including both contributions and earnings.
  • No required minimum distributions (RMDs) for the account owner. A traditional IRA requires you to start taking RMDs at age 73, whether you need the money or not. With a Roth IRA there are no RMDs during your lifetime.
  • Flexibility in retirement income planning. Because Roth withdrawals are tax-free, you can mix Roth, traditional, and taxable account withdrawals to better manage your tax bracket in retirement. This can help avoid higher Medicare premiums (IRMAA) or minimize taxes on Social Security benefits.
  • Estate planning advantages. Inherited Roth IRAs generally must be distributed within 10 years for most beneficiaries (due to the SECURE Act), but those distributions are usually tax-free. This makes a Roth a more tax-efficient inheritance than a traditional IRA.
  • Hedge against higher future tax rates. If you expect tax rates to rise in the future — either because of changes in law or because your income will increase — converting lets you “lock in” today’s tax rates.
  • Potential for legacy protection with trusts. A Roth can be paired with estate planning tools (like a Standalone Retirement Trust) to give heirs creditor protection while still delivering tax-free growth.
  • Access to contributions. While converted dollars themselves are subject to rules, Roth IRAs (once established) allow access to contributions at any time without taxes or penalties, which adds some flexibility in emergencies.

Conversion Considerations

A Roth IRA presents an excellent financial opportunity, but there is one main drawback. If you convert to a Roth IRA, you will have to pay income taxes on the amount you convert; it will be included in that year’s income. Therefore, make sure you evaluate your situation and run the numbers before you make a decision.

Consider how much you would pay in income taxes. Are you currently in a low tax bracket? Will your retirement tax bracket be the same or higher than it is now? Can you pay the tax without dipping into your tax-deferred savings? Did you make any nondeductible contributions that won’t be taxed when you convert? Do you want to eliminate your required annual distribution? Should you convert some or all of your tax-deferred savings?

Seek Expert Advice

This is an appropriate time to get advice from a qualified professional who has experience in this area. There may be a substantial amount of money involved, and while you certainly want to take advantage of this opportunity if it applies to you, you also want to make sure you act wisely.

If you are considering moving your money from a tax-deferred retirement account into a Roth IRA, contact Sjoberg & Tebelius, P.A., to learn the legal and practical implications of this decision. Call us at 651-315-8856 to make an appointment. Serving Minnesota and western Wisconsin.