There’s Never Been a Better Time To Convert Your Retirement Savings


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The stock market has been volatile for the last few years, making retirement planning challenging for many. As you get closer to retirement, you have to start thinking about what kind of accounts you want your funds to be in. You also want to ensure that you’ve taken the proper measures to account for your future tax situation. If you’re currently in the workforce and thinking about how best to set up your finances for your golden years, you’ve likely considered the different retirement accounts.

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Here’s a look at why there’s never been a better time to convert your retirement savings to a Roth IRA account.

Converting to a Roth IRA Account Benefits

“It could be a favorable time to think about converting your traditional retirement savings to a Roth IRA,” said Jeff Rose, CFP and founder of Good Financial Cents.

Here’s a breakdown of the benefits of converting to a Roth account, if you’ve been thinking about making the switch. These four reasons make a compelling case for why there’s never been a better time to convert your retirement savings.

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Avoiding Taxes on Distributions

“When you switch from a regular IRA to a Roth IRA, one of the perks is that you won’t have to pay income taxes on distributions,” stated Rose. “This implies that whatever amount you pull out from your Roth IRA post-retirement will be tax-free. This benefit might become increasingly attractive if tax rates climb in the future due to economic conditions​​.”

If you run the calculations for your retirement and determine that you would likely have a higher tax bill with your multiple income streams, you may want to consider this strategic tax move.

Growth Without Required Minimum Distributions (RMDs)

“Roth IRAs have an edge, as they allow your savings to flourish without mandating minimum distributions every year post a certain age,” shared Rose. “If you have other income sources and wish to leave more for your heirs, this feature could be really appealing​​.”

It’s essential that you consider your future distributions, since your income and expenses will change as you exit the workforce and possibly switch up your entire routine.

Boosting After-tax Retirement Income

“Converting some assets from a traditional IRA to a Roth IRA can amp up your after-tax retirement income,” said Rose. “Although you’d pay taxes upfront on the amount converted, the money then grows tax-free and can be accessed tax-free in retirement, which can be a big plus​​.”

One of the significant perks of converting your retirement accounts will be the future tax implications. Your goal should be to optimize your situation for retirement so that you can live comfortably after putting in your time in the workforce.

Benefits for Heirs

“If leaving a legacy is on your mind, a Roth IRA can be a good move,” Rose added. “Your heirs can take income tax-free distributions for up to 10 years, which can be financially beneficial for them. Especially for individuals with a higher net worth, this conversion can also aid in reducing the size of the taxable estate, which can be a boon for your heirs​​.”

If you’re concerned about your legacy, you could benefit from the Roth conversion. While you may want to consult with an estate planner, it helps to set up your heirs so that they can have financial assistance.

What To Consider When Converting to Roth

While right now could be the ideal time to convert your retirement savings, there are still a few considerations to remember before you make the switch.

There’s Never a Bad Time

“Keep in mind that if a Roth conversion makes sense for your long-term financial plan, there is never bad time to do it,” remarked John Foard, CFP and co-founder of Crown Advisors. “You are not required to convert your entire IRA or 401(k) all at once. Choosing to do it in smaller chunks over a period of years can ease the burden of the tax liability, regardless of how the markets are performing or the condition of the U.S. and global economies.”

Just like with any other major financial decision, it’s critical to remember that you don’t have to rush anything. It always helps to conduct your own due diligence and to get multiple opinions from professionals so that you set yourself up for the future.

You May Not See the Benefits Until Later On

Foard provided additional insights on when someone could see the benefits of a Roth conversion payoff. “Assuming the Roth conversion makes sense for you, the idea that paying a lower tax on those funds now, allowing the funds to grow tax-free and taking a tax-free income during retirement — assuming you follow the rules of the IRS — could pay off later in retirement years, assuming income tax rates eventually go up.”

While it’s challenging to predict future market conditions, you have to make the best possible decision today with the information available.

Closing Thoughts

“The key is smart and purposeful planning to make sure you are confirming the validity of the Roth conversion option for your specific situation,” concluded Foard. “From there, work with your tax professional and qualified financial planner to create a game plan that makes the most sense for you.”

If you feel that you’re ready to convert your retirement savings, it’s essential that you work with the proper financial professionals to ensure a smooth process.

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This article originally appeared on I’m a Financial Advisor: There’s Never Been a Better Time To Convert Your Retirement Savings


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