With more people nearing retirement age, they are taking a closer look at their retirement savings. They want to maximize their nest eggs while lowering their tax obligations, and they may be wondering if converting some or all of their IRA dollars to a Roth IRA makes sense.
Roth IRAs have been gaining in popularity over the years. By paying taxes on contributions, the Roth IRA allows people to grow their money tax-free. There are also no taxes on withdraws so long as the account has been open for longer than 5 years. Here are a few reasons you may consider converting IRA dollars to a Roth IRA:
You are Retiring Early
You may be at the point in your life where you want to enjoy your golden years now, yet can’t get Social Security because of your age. Convert your money to a Roth IRA so you can make withdraws when you need the funds to help control the tax bill. Then once you reach full retirement age or wait until age 70, you can obtain Social Security benefits to help fund living expenses.
You Won’t Need the Money in Your Later Years
A top benefit of a Roth is that you won’t have to make minimum distributions when reaching the age of 70 1/2, which are required for a traditional IRA. So you can let the money sit and grow for later in retirement or even for your heirs who can enjoy it tax free later.
You Want to Reduce Taxes to a Large Estate
If you have a large estate, your heirs will have to pay state and federal inheritance and estate taxes. You may be able to lower estate taxes and even pay it for your heirs by converting to a Roth. Estate planning can be tricky, as you don’t want to end up pushing yourself into a higher tax bracket. So speak with a financial advisor first to avoid any pitfalls.
The reasons to convert from a traditional IRA to a Roth IRA will be based on each individual’s future retirement needs. Working with a financial planner can help you make the right retirement choices for your investments.
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