The taxation of Roth conversions will take center stage in 2019 for more people as tax rates have been lowered across the board making it more advantageous for many folks to make the transfer from a traditional IRA to a Roth IRA. But remember: when making the transfer, tax is paid on the ordinary income in the taxable year of the transfer.
Here is how it often works for people who chat with our office: They are usually a high wage earner who is at the right time in his/her life where they can afford to take a brief break while segueing to a different career. There is potentially a tax year where less money is made during the time of this transition. That tax year would be a great year to take an IRA and transfer it to a Roth IRA, and pay ordinary income taxes on the transaction at a much lower rate on the transfer. Going forward, earnings will remain to grow in the tax deferred account, and all withdrawals in the future from the account will be tax free, assuming the rules don’t change!
As always, please consult with your trusted tax advisor before making any important tax and financial decisions.
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About Stu: With more than 29 years of experience as a tax professional, Stu Steinberg brings a broad depth of knowledge to his work with his clients. Stu founded Erock Tax to help provide tax and financial planning strategies to individuals, families and small businesses and is passionate about empowering his clients through education about their money health. Stu is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.