Should I Roth Convert in 2021?

Should I Roth Convert in 2021?

December 18, 2021
Welcome to the Weekly SUMmary - 12/17/2021
Should I Roth Convert in 2021?
This is a difficult question to answer, but let’s look at a few reasons why one may want to convert prior to year end.

First, let’s look at what a Roth Conversion is, see previous post here:

Reasons you may want to convert now:

  1. You are not qualified to contribute to a Roth account.
  2. Your income is lower than it has been in years past.
  3. You expect your taxes will increase in the future.
  4. You want to lower future Required Minimum Distribution (RMD) amounts.1
  5. You want your heirs to receive more tax free assets.
  6. Expectations for growth are substantial.2
  7. You can afford the additional taxes you will pay due to the conversion.

This list is not exhaustive and your financial advisor could help you decide if a Roth conversion makes sense for you.

The biggest reason I would say NOT to convert now is if you cannot afford the additional taxes due to the conversion.

Taxes and financial planning can be confusing and difficult to understand. I enjoy educating people on their options. Book an appointment at the bottom right of this page if you’d like to discuss.

In the meantime...
Do SUMthing smart with your money.

  1. This bullet assumes one will convert enough to lower the account balance below the previous year’s balance and offsetting increase in RMD calculation based on RMD actuarial tables.
  2. This bullet assumes since the conversion is dollar for dollar in the account, the assets move from a pre tax to after tax account, therefore if one has 1 dollar in pre tax and 1 dollar after tax, growth is the same, but based on qualified distributions, the pre tax account will have taxable distributions and the after tax Roth will not.

As always, any information provided in this and any other blog should not be considered advice or recommendation, but educational in nature. Information provided is based on experience in industry, continuing education, advanced degrees and further studies.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

You may take nontaxable withdrawals before age 59½ if the Roth IRA is held for at least five years and you meet certain distribution guidelines. Otherwise, an early withdrawal before age 59 ½ may be subject to taxes and a 10 percent federal tax penalty. Please discuss with your tax advisor prior to making financial decisions.