Do Roth Conversions Magically Lower Your Taxes?
Roth conversions have become one of the most talked-about retirement planning strategies. The idea is simple. You voluntarily move money from a traditional IRA into a Roth IRA, pay taxes on the conversion, and future growth can potentially be tax-free. Many people stop there and assume a Roth conversion automatically saves taxes.
It doesn't.
A Roth conversion works best when you have relatively low taxable income during the years you're converting. For example, someone who retires at age 62 may have several years before Social Security begins and before required minimum distributions start. Those years may create an opportunity to convert IRA money while remaining in a lower tax bracket.
On the other hand, if your taxable income is already high, a Roth conversion may push more income into higher tax brackets and create a much larger tax bill than expected. That's why I tell clients that the conversion itself isn't the strategy.
The opportunity is identifying years when your taxable income is unusually low and deciding whether a Roth conversion makes sense during that window.
If you're considering a Roth conversion and aren't sure how it could affect your taxes, text me at 513-434-1930.
Mason