罗思个人退休账户转换

Roth IRA Conversions:A Powerful Wealth-Transfer Tool Converting a traditional IRA or another qualifiedretirement plan to a Roth IRA can be a powerfulwealth-transfer tool under the right circumstances.Knowing and quantifying the “right circumstances,”however, can be a daunting task. In this paper, we will look at how a Roth conversionworks and identify the factors that need to beconsidered when deciding whether converting toa Roth makes sense for you. How does a Roth IRA conversion work? It is important to note that the income generated by aRoth conversion can trigger the 3.8% Medicare surtax onunearned income, which hits single filers with modifiedadjusted gross income (MAGI) greater than $200,000and married filers with MAGI greater than $250,000.The conversion amount itself is not counted as unearnedincome, but the conversion amount is included in MAGI.As a result, more of your unearned income may be subjectto the Medicare surtax. Before exploring the mechanics of converting a traditionalIRA to a Roth IRA, it is important to understand thedifference between the two types of retirement accounts. Traditional IRAs (pay taxes later) vs. Roth IRAs(pay taxes now) The difference between traditional IRAs and Roth IRAscomes down to whether you pay taxes on the front end (onthe contributions) or the back end (on the distributions).With a traditional IRA, contributions to the account areoften tax-deductible, but once you withdraw the funds, thedistributions, including any growth of those funds, are fullytaxable as ordinary income. With a Roth IRA, on the otherhand, the timing of when you pay is reversed. There is noup-front tax deduction for contributions to a Roth IRA, butqualified distributions are tax-free, including any growth ofyour contributions. These tax-free distributions apply notonly to the Roth IRA’s original owner but also to any heirswho may inherit the account. Recharacterizing a conversion Prior to 2018, it was possible to undo, or “recharacterize,”a Roth conversion. If the market value of the accountdecreased soon after the conversion occurred, it mayhave made sense to recharacterize the account back to atraditional IRA and then do another Roth conversion lateron. Doing so may have allowed you to have a lower tax billfor the conversion because the size of the account may havebeen smaller after the market dip. The opportunity to recharacterize a Roth conversion is nolonger an option. No RMDs for Roth Besides tax-free growth, another advantage of Roth IRAsis the lack of required minimum distributions (RMDs).With a traditional IRA, the account owner is required tostart taking distributions upon reaching age 73 or 75.¹ Thisrequirement does not apply to Roth IRAs, and the lack ofRMDs can make Roth IRAs powerful estate planning andwealth accumulation tools. Variables to Consider for a Roth Conversion Although there are no hard-and-fast rules for whether ornot to convert a traditional IRA to a Roth IRA, a conversionusually creates the most value when the investor: Taxes: The Cost of Converting •Anticipates being in a higher or equivalent bracketduring retirement•Will not need to make withdrawals from the accountin the short term•Has funds available outside the IRA to pay for theconversion tax•Plans on having a significant balance in the accountto pass onto heirs Converting a traditional IRA to a Roth IRA often creates asignificant one-time tax bill for the account owner. Whenconverting an IRA, any funds representing contributionsthat were tax-deductible, as well as the growth of thosecontributions, are taxed as ordinary income in the year ofthe conversion. For example, if an investor in the 37% bracket converts atraditional IRA worth $1 million to a Roth IRA, the investorwould owe $370,000 in taxes that year. (This assumes that100% of the investor’s contributions to the traditional IRAwere tax-deductible.) 1Due to the SECURE 2.0 Act, the RMD age has increased to age 73 for individualsborn in 1959 or earlier and to age 75 for individuals born in 1960 or later. Is a Roth Conversion Right for You? Under the right circumstances, converting a traditionalIRA to a Roth IRA can create significant tax savingsand valuable wealth-transfer opportunities. But thesecircumstances certainly won’t apply to all investors. Itis important to understand the variables that determinewhether a Roth conversion makes sense. Availability of cash to pay tax on conversionInvestors considering a Roth conversion need to think about where the cash will come from to pay for the taxbill generated by the conversion. If you are able to pay thetax using resources outside of the IRA, it will significantlyincrease the chances that the conversion will provide a netbenefit. If you have to liquidate assets in the IRA to payfor the conversion tax, however, that will significantly eatinto the potential benefits of a conversion. In addition, ifyou are not yet age 59 1/2, you will be subject to a 10% earlywithdrawal penalty. Tim