• Darryl Rosen

I Have Arthritis, Can I still do a Roth Conversion?

Once in a while there's a question that sparks great debate in class.


That’s what happened last week, and the subject was Roth Conversions after you've started taking RMDs...or when you're a bit more advanced in life...


(I tried to say that as gently as possible!)


Anyway, it may not be a trending topic in your life, but it did come up in class the other day. The question: When you begin taking Required Minimum Distributions - is it too late to make a Roth conversion?


As you know, the goal is SECURiMENT!


SECURiMENT is peace-of-mind. SECURiMENT is operating from a position of strength, ALWAY, when it comes to your


money. With that in mind, any strategies that enable you to save taxes, help you take control over your money. Growing money tax-free in a Roth account is taking control over your money.


As you may know, the year after you reach 70 1/2, you are required to take distributions from your tax-deferred retirement accounts. (IRAs, SEPs, 401Ks, etc.) The IRS wants their tax money, so they force you take small chunks out of these accounts year after year.


Most people need this money to live on in retirement to pay for rent and groceries, etc. so this isn’t an option. On the other hand, some people have pensions or other sources of guaranteed income, so they don’t need the money coming out of IRAs/401Ks for their spending needs.


So, the question comes up: can that money go into a Roth account.


Yes, but you must understand the following:


1) The RMD must come first (this is always the first step. The RMD must always be processed first.)


2) Next, the rollover must take place within 60 days (i.e. the money must go to the Roth account quickly.)


3) Finally, the amount must be correct!


The order as listed above is essential. Errors should be avoided. Unfortunately, excess contributions are subject to a 6% penalty, so if you don't take the RMD (first), and simply shuttle the funds over to your Roth account, you could face a penalty. Thankfully, errors can be corrected if you act quickly.


Roth conversions can be a good move for several reasons: (Per Ed Slott and Associates)


"By reducing the balance in your IRA in the current year, you reduce the amount of your future RMDs. You are also making a “gift” to your heirs of prepaid income tax. You are paying the tax for your heirs, and you don’t even have to report it to the IRS on a gift tax return. It doesn’t reduce your estate tax exemption either."


So, if you like your children...


And this from www.investmentnews.com


"This (strategy) lets the tax-free accumulation begin since Roth IRAs have no lifetime required minimum distributions. The Roth funds grow tax-free and eliminate uncertainty about the effect that future higher taxes could have on the traditional IRA RMDs.


If you use the Roth account and all its tax-free grandeur. You'll be operating from a position of strength – and that’s what you want!


That's just how it works!

 
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