Should you consider a ROTH conversion?

In 2010, the Roth IRA conversion law changed. Before 2010, there was an income limit on Roth conversions. If your income exceeded $100,000, you could not convert to a Roth IRA. The law was repealed permanently in 2010, enabling higher earning individuals to convert to a Roth IRA.

The chief advantage of a Roth IRA is the more flexible rules concerning distribution. For example, contributions to a Roth IRA can be withdrawn at any time without penalty. Additionally, earnings in a Roth IRA, can be withdrawn tax and penalty free providing the individual is at least 59 ½ and has held the Roth IRA for at least 5 years. Another benefit of a Roth IRA is there are no Required Minimum Distributions (RMDs) as there are with Traditional IRAs.

Now, with recent law changes (Secure Act 2019 & SECURE 2.0), the use of the Roth IRA conversion may become increasingly more beneficial in many aspects. Under the SECURE Act, non-spousal IRAs inherited by beneficiaries, will need to be fully distributed within 10 years of the original owner’s death. That income could push some beneficiaries into higher tax brackets. Therefore, a Roth conversion could be attractive if those beneficiaries’ tax rates are higher than the rate upon conversion. In addition, the starting age for RMDs was pushed out from 70½ to 72 in 2019, then moved again to age 73 in 2022. SECURE 2.0 also provides that the RMD age will be extended to age 75 in 2033. These changes may allow individuals more time to execute a conversion strategy.

Analyzing your specific situation (income, taxes, beneficiary situation/needs, etc.) is critically important in making the decision if a Roth Conversion is right for you.

ShoreHaven Wealth Partners can complete a full analysis considering the timing of the conversion (over an extended number of tax years) and the possible benefit for not only your IRA but also for the beneficial owners of your IRA. Please reach out to us directly for a full customized analysis.