Issue 30.16
In any conversation about IRAs, a Roth conversion is almost certain to be brought up at some point.
After all, Roth IRAs are sometimes a great way to put aside a retirement income investment that continues to grow as you enjoy retirement.
This account also has a lesser-known benefit – it can be treated like “tax insurance”.
There are differences between tax preparation and tax planning. Tax preparation being what your CPA does when they review your files and find the credits, deductions and exemptions available to you based on your fiscal year. Tax planning looks forward and helps you plan to save money on taxes in the future by making small adjustments to the way you earn, spend and invest your money.
Tax planning is for paying taxes in the most efficient way. Sometimes that doesn’t mean just finding new ways to save money on your taxes, but also to pay more tax while the rates are lower.
Unfortunately, there’s no crystal ball that can see the future of tax rates but perhaps you have an idea where they may be headed. So when’s the right time to pay tax on your IRA and convert that money to a Roth?
It seems to go against our better instincts when we pay the tax on our IRA withdrawals before we’re required to, but doing so could potentially save you money in the future.
By paying the tax on your IRA withdrawals now and converting that money to a Roth IRA, you don’t have to worry about the future of taxes. You’ve already paid your fair share and no matter what tax rates do in the future, you’re done.
As you near retirement, it’s important to consider these options and discover which decision is best for you. At Eric Scott Financial, our guides are able to help you determine what’s best for you. Call (435)773-9444 to schedule a free consultation.