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(Video) Strategy 1 of 3: Roth Conversion

Right now may be the “perfect storm” for you to convert your IRA to a ROTH. See why current taxation, market conditions, and the future may give you a boost during this time of uncertainty.

Transcript of (Video) Strategy: 1 of 3 – Roth Conversion

Good afternoon everybody! Hope this video finds you well!

Great thing about working at home is that I don’t have to wear this, and that is a beautiful thing! So welcome to the Teachers Edge, it’s a video series that I’ve created to help you educators improve your retirement. The first series of videos are going to focus on what you can do to combat what’s happening in your portfolio. As we in the world combat what’s happening with Covid-19. And the first strategy we are going to talk about is Roth Conversions. Now you may be asking yourself, what does a Roth Conversion have to do with anything that’s happening in the world right now? And how can that help my portfolio? Well today, you’re going to find out!

So the first thing that I want to do is make sure that we are all on the same page with the differences between a Traditional IRA and a Roth IRA.

Now with the Traditional IRA, what you are going to see here is that the contributions are tax-deferred. So everything that you’re putting into this account, you do not pay taxes on. However, whatever you withdraw out of the account is going to be taxable. And once you get to 72, which is different now, it used to be 70 ½. Once you get to 72, Uncle Sam says “pay up buddy! I want my Taxes!”
However, with a Roth IRA, a few differences. The money that you’re putting into a Roth IRA, you’ve already paid taxes on. However, this is the big benefit right here, any of the withdrawals that you take out of that account are tax-free! They do not count towards your taxable income. With the RMD’s (required minimum distributions), you don’t have to take any out of a Roth IRA.

So, those are the differences between those two types of accounts. Now, we’re talking about converting a Traditional IRA into a Roth IRA, moving it over. Now, what would you have to do if you converted a traditional IRA into a Roth IRA? You’re absolutely right! You have to pay the taxes on it when you make that conversion.

Why would we want to do that right now?

Well, there a few different reasons why we would want to do that right now. The first is that if you remember, back in 2017, our tax brackets looked quite a bit different than they do today. We had a 10%, and then it jumped right to 15. Then it got higher from there. Now, we have a 10, and a 12 and then it jumps to 22. So there are differences. But most Americans are going to fall into that 12% tax bracket. So, the money that you would have taken out in 2015, you would have paid 3% more in taxes than you are today. So that is one reason why right now, a ROTH conversion might work for you.

The second reason is that, well lets face it, the market is down.

Many of you folks might be in the same situation that you were when this administration started. You’ve seen some losses. The idea is, while the market is down, lets move some of what you have left into a Roth, so that when it comes back up. Which it is going to do right? The market is going to go back up, that’s how the market works. When the market does rebound, all the growth that you’re going to experience when you decide to take it out of that account, you’re not going to have to pay taxes on. Isn’t that fabulous! It is, it is absolutely fabulous.

So those are the two main reason why you would want to move money that you have in an IRA, over to a Roth. There is a caveat about it though. When you are moving that money over, it is considered income for you. So you’re going to have to pay taxes on it. So you’re going to want to speak with a Financial Professional, who is going to be able to talk to you and discuss the tax consequences of that. What the strategy is, that I do with my clients is that we look at how much breathing room there is, between the 12% tax bracket and the 22% tax bracket.

For Example:

Lets say there is $18,000 worth of playing room in there. Well this year, lets move $18,000 over. You’re not going to bump yourself up into another tax bracket, but yet re-growth that you’re going to see eventually, is still going to be in that tax rate account. So Roth Conversion, 1st Strategy, might be worth looking into for you. Everyone’s situation is different but if you’d like to speak with me more about this or any other issue in retirement. Hey, I’m here, we’re not going anywhere right?

So at the end of this video, you’ll see some ways in which you can contact me. And until I speak with you next time, happy hibernation! And unfortunately, I have to go to the store.

My fellow teachers! Unsure about a Roth Conversion or have any questions related to your Retirement? Click on the link in my profile to schedule your complimentary “Straight from The Teacher” 15-30 Minute Phone Call!

If you would like further information on planning for or reevaluating your retirement, or simply want to chat, give us a call at 231-421-7391.

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