A good time for Roth conversions

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The potential for significant taxes on our workplace retirement balances is not something to be taken lightly. The impact of taxes on a portfolio can have a major effect on results. But there is something investors can do about it. And that’s doing a conversion.

Traditional IRAs and 401 (k) aren’t the only flavor. Roth accounts are created with after-tax money and as such can be dialed tax free. For this reason, no tax is paid when withdrawing money and there is no dreaded RMD. But there are income limits to be contributed to open in the first place and many employers still don’t offer the Roth 401 (k).

But there is hope for investors. the IRS will allow you to convert all or part of the money in a traditional account and turn it into a Roth account.

Now when you do this you will be paying taxes on any money in the IRA that would have been taxed when you withdrew it, including contributions and tax-deferred income. This money will be taxed as income for the year you make the conversion and you will need to complete a Form 8606 with your taxes. Basically the IRS lets pay taxes now to avoid paying taxes later in retirement.

There are also additional benefits. While the SECURED The law killed off “Stretch IRAs”, a Roth account will still allow beneficiaries to receive tax-free distributions for ten years after the death of the original owner. This can be beneficial, as most recipients are usually in the highest income years when this occurs.

Be sure to check out this article to find out how new bills in Congress could affect your wallet.

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