Now might be a good time for some taxpayers to convert their traditional IRA to a Roth IRA. Traditional IRA withdrawals are taxed and, if taken early, may be subject to penalties. Also, required minimum distributions (RMDs) must be taken starting at age 73 (or 75 if you won’t turn 73 until after 2032). But qualified Roth IRA withdrawals are tax-free, you can access Roth contributions anytime tax- and penalty-free, and there are no RMDs for Roth accounts.
Converting a traditional IRA to a Roth can allow you to turn tax-deferred future growth into tax-free growth and take advantage of a Roth IRA’s other benefits. But, taxes are due on the converted amount. If your traditional IRA’s value has dropped due to market volatility or you’re in a lower-than-usual tax bracket this year, your tax bill on a conversion will be lower.
Ideally, pay taxes with non-IRA funds to preserve future tax-free growth potential. Conversions work best if you don’t need the money soon, giving it time to grow. You can even spread conversions across multiple years to reduce the tax impact. A Roth conversion can be a smart move, but it’s not for everyone. Contact the office to explore your options.