When to Consider a Roth IRA Conversion Asset Strategy

If you find yourself with a traditional IRA account for your retirement, it can occasionally be useful to convert your account to a Roth IRA. A key difference between these accounts is that a traditional IRA is taxed when contributions or earnings are withdrawn, whereas a Roth IRA is taxed before the money is put into the account.[1] Because the Roth IRA offers you tax-free withdrawal, the strategy of converting a traditional IRA to a Roth IRA might be worth considering if you expect to be in a higher tax bracket later on. So much of retirement planning can be about managing your tax burden, and this might be a technique that can help you to optimize for the best tax situation. Every individual is different, but let’s take a look at why someone might consider this strategy.

Many people assume that because they will no longer be working, their income bracket will be lower when they retire. This can be true, but it isn’t always the case. Because a traditional IRA withdrawal will be taxed at your current income rate, it’s very important to have a good sense of what tax bracket you might be in during the years you withdraw from a traditional retirement account.[1]

If your tax bracket during your late retirement years will be close to the same as your working years (or even higher in some cases), then a Roth conversion might be something you should consider. As a hypothetical strategy, you might move some of the money in your traditional account to a Roth account during the early years of your retirement when you are not withdrawing Social Security and are not burdened with Required Minimum Distributions (RMDs). The idea is that while your income is lower, you can take the tax hit for converting some of your funds to a Roth IRA. Then, your funds could grow without having to worry about paying taxes when you withdraw. Again, this strategy is not good for every situation. There are a lot of factors to consider when making this kind of financial move.

Your timeline of retirement planning is filled with complexities and strategies like this one. They might be great for you, or they might be suboptimal – but it really depends on your situation. If you are looking for someone to help guide you through the process of designing a personalized retirement plan, feel free to reach out to us today for a complimentary review of your situation.


[1] https://www.kiplinger.com/retirement/benefits-of-roth-ira-conversions-early-in-retirement

Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor.

This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.

There are retirement account risks that could diminish investor returns, such as, but not limited to: low interest rates, market volatility, withdrawal timing and sequence of returns risk, government policy uncertainty and increased longevity. Prospective investors should perform their own due diligence carefully and review the “Risk Factors” section of any prospectus, private placement memorandum or offering circular before considering any investment.

Advisory services offered through Asset Strategy Advisors, LLC (ASA). Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Insurance offered through Asset Strategy Financial Group, Inc. (ASFG). ASFG and ASA are independent of CIS.


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