Do You Know About Roth Conversions? A Little-Known Strategy To Growing Retirement Savings Tax Free
Last week I wrote a short article about the importance of looking at your financial planning before the new tax legislation goes into effect. You can read more here
Today, I am talking about Roth Conversions, because many people are not aware of the laws regarding some retirement plans. Several financial experts refer to this strategy as the “back door” to retirement savings. Taking a cue from business mogul, Peter Thiel, who grew his PayPal $2000 pre-IPO shares valued at less than a penny each into $5 billion accruing tax free in his Roth IRA has stirred up conversations about conversions. How can the average individual or family benefit from conversions?
If you have the means to save significant dollars, some 401(k) plans permit after-tax contributions of up to $58,000 per year. Accordingly, some or all of this can be converted to a Roth with minimal taxation if guided by an expert in this strategy. Most singles can put in $6000 per year currently and get the tax deduction on the “seed” and avoid taxes on the harvest until age 59.5 when the account has blossomed. But the IRS wants their share, so there is no avoiding taxes. However, if you believe that taxes are going up, (and we know now this is happening as early as January, 2022,) you might consider working with a financial tax expert and paying the upfront taxes now so that your harvest grows completely tax free. One caveat is that you can’t take the money out until age 59.5.
I agree with IRA specialist, Ed Slott, in Rockville Centre, N.Y., “The best place retirement money can end up is in a Roth account, where it grows totally tax-free for the rest of our lives.” Not only is this a sure way to preserve legacy while minimizing tax, but there are other advantages to converting to a Roth. Many people don’t know that you can hold real estate inside a Roth IRA, nor do most know that you can convert traditional savings to a Roth 401(k). It’s important to ask whether your employer offers these options. Schedule a no obligation consultation to learn more about protecting your future legacy today. You can email us at email@example.com to schedule an appointment. Here’s to preserving your wealth for future generations!
Article contributed by Valerie Clark, MVPL ~ A Wealth Resource Consulting Group