Why there’s never been a better time to convert your retirement savings to a Roth

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The stock market has been volatile over the past few years, making retirement planning a challenge for many. As you approach retirement, you should start thinking about what kind of accounts you want your money to go into. You also want to make sure you take the appropriate steps to consider your future tax situation. If you’re currently in the workforce and wondering how to best structure your finances for your golden years, you’ve probably considered a variety of retirement accounts.

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See why there’s never been a better time to switch your retirement savings to a Roth IRA account.

Converting to a Roth IRA account benefits

“With the current state of the stock market, with the Dow Jones at 33,118, slightly lower than its 52-week high of 35,679, it may be a good time to think about converting your traditional retirement savings to a Roth IRA.” According to Jeff Rose, CFP and founder of Good Financial Cents.

If you’re considering making the switch, here’s a list of the benefits of switching to a Roth account. These four reasons make a compelling case for why there’s never been a better time to change your retirement savings.

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Avoiding taxes on distribution

“One of the benefits of converting from a regular IRA to a Roth IRA is that you don’t have to pay income tax on the distribution,” Rose said. This means that any amount you withdraw from a Roth IRA post-retirement will be tax-free. This benefit may become more attractive if tax rates rise in the future due to economic conditions.

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

Development of required minimum distributions (RMDs).

“Roth IRAs have an edge in that they allow your savings to grow without requiring small distributions each year after a certain age,” shares Rose. “If you have other sources of income and want to leave more to your heirs, this feature can be very attractive.”

It’s important to consider your future distribution as your income and expenses change when you leave the workforce, and you may change your entire day job.

Increase after-tax retirement income

“Converting some assets from a traditional IRA to a Roth IRA can increase your after-tax retirement income,” Rose said. Although you pay tax on the converted amount upfront, the money grows tax-free and can be accessed tax-free during retirement, which can be a huge plus.

One of the significant benefits of switching retirement accounts is the future tax implications. Your goal should be to prepare for your retirement so that you can live comfortably after your time in the workforce.

Benefits to heirs

“If leaving an inheritance 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 to them. Especially for high net worth individuals, this exchange can help reduce the amount of assets that are payable, which can be beneficial to your heirs.”

If you’re concerned about your inheritance, you can consider a Roth conversion. While you may want to consult with an estate planner, it can help ensure that heirs have financial support.

What to consider when converting to a Roth

Although now may be the perfect time to switch your retirement savings, there are still a few tips to keep in mind before making the switch.

There is never a bad time.

“If a Roth conversion makes sense for your long-term financial planning, remember there’s never a bad time to do it,” says John Ford, CFP and founder of Crown Advisors. “You don’t have to roll over your IRA or 401(k) all at once. Regardless of how the markets are doing or the state of the U.S. and global economy, choosing to do so in small chunks over the years can ease the burden of your tax liability.”

As with any major financial decision, it’s important to remember that you shouldn’t rush anything. It always helps to get a lot of opinions from experts to guide your due diligence and prepare yourself for the future.

You may not see the benefits until later

Ford provided additional insights on when a person might see the benefits of a Roth conversion payout. “Assuming that a Roth conversion makes sense for you, paying lower taxes on those funds, allowing the money to grow tax-free and taking tax-free income in retirement — assuming you follow the IRS’s rules — pay later in your retirement years with the assumption that income tax rates will eventually rise.”

While it can be challenging to predict future market conditions, you need to make the best decisions today with the information available.

Closing thoughts

“The key is smart and purposeful planning to make sure you’re making sure the Roth conversion option is right for your particular situation,” Ford concluded. “Then work with your tax professional and qualified financial planner to create a game plan that makes the most sense for you.”

If you feel you are ready to change your retirement savings, it is important that you work with the appropriate financial professionals to ensure a process.

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