Rubino & Liang Wealth Partners

A Roth IRA Conversion – The Why, The When, And How

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Welcome To The First Episode Of After The Paycheck!

To kick off the video series, Adam and Sam sit down to discuss a question that Rubino & Liang Wealth Partners blog subscriber Rich submitted to the show:

“I am recently retired, have a pension and a 457b, is now a good time to start a Roth conversion of the 457 with the tax rates the way they are?”

In the video Sam and Adam discuss details, but highlights include:

Why you may want to consider converting a tax-deferred account to a Roth IRA:

  •  Growth in a Roth IRA account is tax-free!
  •  If your income tax bracket in retirement might be higher than what you expected, you may want to consider taking advantage of the current historically lowest income tax levies (2019).
  •  If you are approaching an age where you are going to be required to take required minimum distributions (RMDs), and THAT income could put you in to a higher tax bracket, it might behoove you convert to a Roth IRA, where RMDs don’t come in to play.

Situations/Reasons in which converting to a Roth IRA might NOT be a good idea:

  •  When converting a tax-deferred account in to a Roth IRA, you have to pay taxes on that conversion (immediately). If you don’t have the funds/budget to pay that tax, 
  •  There is a 5 year “rule”, where you aren’t allowed to access Roth IRA rolled-over amounts, or else you will be hit with income taxes AND a 10% penalty from the IRS.
  •  If you are in a higher tax-bracket now, but KNOW that you will be in a lower bracket in the next year or two (your yearly income will be dropping). It might make more fiscal sense to just wait out your current situation, where withdrawals from your account can be kept in as minimal taxable bracket as possible.

How To Get Started On A Roth IRA Conversion

Typically, there are two scenarios in how you’ll convert your account in to a Roth IRA: A indirect rollover conversion, or a trustee-to-trustee transfer. In both scenarios, you’ll need to make sure you’ve created a Roth IRA account first, which you can do with almost any brokerage and a lot of banks today.

 – If you can perform a trustee-to-trustee transfer, you’ll call the current financial institution that has your assets and let them know where to transfer the amount that you’d like to rollover. They’ll be able to help you through the rest of the process.

 – If you need to perform an indirect rollover conversion, click here for more info. Once you’ve liquidated that tax-deferred account, you’ll have 60 days to move that money in to a new account, or be subject to additional taxes and penalties.


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