The New Tax Law Makes Roth IRAs More Attractive: Part Two

Converting to a Roth IRA

There are no income limits on who can convert their existing retirement savings to a Roth IRA. So even if your income is high, you can transfer savings from a traditional, SEP, or SIMPLE IRA to a Roth IRA. You can also transfer savings from an old 401(k), 403(b), or governmental 457(b) plan to a Roth IRA, as long as you no longer work for that employer.
When you convert to a Roth IRA, you must pay ordinary income tax on the converted amount that was not previously taxed. This typically includes any earnings your savings have generated and any pre-tax or deductible contributions you made. Ideally, the tax should be paid from funds outside of your retirement account so that the full amount you convert can remain in the Roth IRA where it can compound tax-free.

How much of your savings you convert is up to you. You may want to consider converting just enough each year to avoid being pushed into a higher tax bracket.

The new tax law did make a change to Roth IRA conversions that you should know about: Conversions made after 2017 cannot be undone. This means that if you convert your savings to a Roth IRA, you cannot change your mind and convert them back to a traditional IRA.

Copper Leaf Financial is a fee-only, fiduciary firm and we can help you by providing advice on all financial matters. With offices in Williston and Rutland, Vermont, we develop a customized wealth management (financial) plan designed to integrate every aspect of your financial life. This is "true wealth management" - a holistic, all-encompassing approach that goes beyond just investment advice. Call us today at (802) 878-2731 to schedule a strategy session and begin building your road map to financial success.

See also: The New Tax Law Makes Roth IRAs More Attractive: Part One

Article published in Copper Leaf Financial publication Eye on Money - September 2018 issue.