Getting Your Financial Ducks In A Row Rotating Header Image

roth ira conversion

NUA and the Roth Conversion

Can you use a Roth conversion for NUA-treated stock? Unfortunately no, and this article explains why it’s not an option.

Staging Your Roth IRA Conversion

You can benefit in the long run by staging your Roth IRA conversions. This can reduce taxes and potentially eliminate RMDs.

Integrating Roth IRA With Social Security Benefits

It can pay off if you plan on integrating Roth IRA with your Social Security benefits. Conversion to Roth IRA can be very beneficial in surprising ways.

Be Careful When Converting

When converting from a 401(k), traditional IRA, 403(b), SIMPLE IRA, SEP or 457(b) to a Roth IRA there are some important tax considerations to keep in mind. First, converting from a tax deferred plan to a tax free plan it’s not always the best idea. Generally, it’s going to make sense to convert if the tax payer believes that he or she will be in a higher income tax bracket in retirement. For example, John, age 28 has a 401(k) and recently left his employer. He’s currently in the 15% bracket but expects to be in the 28% bracket or higher in retirement. It may make sense for John to convert his 401(k) to his Roth IRA. This makes sense for John because when he converts from a pre-tax, employer sponsored plan like the 401(k) it’s money that has not yet been taxed. If he converts while in the 15% […]

Pre-Death Planning: Roth Conversion

Image via Wikipedia Financial planning often requires us to face our own certain demise – something that we often don’t want to do, but still a certainty that we all must face. Among the things that we want to do when planning for the inevitable would be to make certain that our surviving loved ones have access to adequate monetary resources to support themselves, in the most cost-effective manner.  Another thing that we hope to accomplish is to make the transition as easy as possible for our loved ones.  One way to do this is to convert a good portion of your IRA or other tax-deferred funds to a Roth IRA account.  Here’s why: By converting to a Roth account, you will make the funds in that account available to your heirs totally tax free. Granted, your estate will also be smaller by the amount of tax that you paid […]

Roth Conversion/Recharacterization Strategy

Image via Wikipedia 1/1/2018 Note: Recharacterization of Roth conversion is no longer allowed as of tax year 2018. The last tax year that you could recharacterize Roth conversions is 2017. See Roth Recharacterization is No Longer Allowed for more details. If you have an IRA you probably know about the concept of a Roth IRA conversion – where you take distribution of a portion of your IRA and directly transfer that money into your a Roth IRA, paying tax as you go.  Then the Roth IRA can continue to grow tax-free (as Roth IRAs do) and you’ll never owe tax on your qualified distributions from the Roth IRA. In addition, if the investments you’ve made in the Roth IRA have lost money, before October 15 of the following year you have the opportunity to recharacterize your Roth conversion.  If you didn’t recharacterize, you’d be paying tax on a conversion amount […]

Re-Converting Your IRA

Image by accent on eclectic via Flickr Okay, so we’ve covered Roth Conversions – where you distribute the funds from your traditional IRA to a Roth IRA.  Then we covered Recharacterizations – where you can “undo” the conversion by moving all or part of the converted funds and the earnings associated with it back into a traditional IRA.  The end result is that, for those funds converted and recharacterized, from the eyes of the IRS, nothing happened to the account (except that you may have put the money back into a different IRA). So, if you went through a Roth Conversion and then Recharacterized it, the assumption is that you wish to eventually re-convert those funds to a Roth account.  When are you allowed to do this? There are two limits on the Re-Conversion of funds to a Roth account once they’ve been through the Conversion/Recharacterization wringer: This first limit […]

The Roth Recharacterization

1/1/2018 Note: Recharacterization of Roth conversion is no longer allowed as of tax year 2018. The last tax year that you could recharacterize Roth conversions is 2017. See Roth Recharacterization is No Longer Allowed for more details. After all the hoopla around Roth conversions in 2010, now is the time to consider whether or not a recharacterization is in your future.  So what is a recharacterization, and how does it work? Recharacterization is the “backing out” of your Roth conversion.  In other words, you can literally make the conversion as if it had never been done at all, with your money back in the traditional IRA where it started. Why would you want to do that?  Here’s an example: let’s say you converted $100,000 to a Roth IRA in 2010 and you are ready to pay the tax on your 2010 return (you elected out of the spread to 2011 […]

New Opportunities to “Roth”

Recently one of the tenets of the Small Business Jobs Act of 2010 came into effect, providing you with additional opportunities to set aside funds in a Roth account – not a Roth IRA, but rather a “designated Roth account”, often referred to as a Roth 401(k) or Roth 403(b).  Designated Roth accounts are also often referred to as DRACs – just to keep the acronym train rolling. The way the new law works is that, if you have a 401(k) or 403(b) (the traditional kind), you can roll over or convert some of your funds to a DRAC while the account is still active – as long as your plan is set up to allow in-plan distributions of this variety. The eligible rollover distribution (ERD) must be made: after September 27, 2010; from a non-designated Roth account in the same plan, meaning your traditional 401(k) or 403(b); because of […]