Retirement Planning: Four Reasons You May Want to Convert to Roth IRA
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Market volatility this year may have prompted you to review your investment plans, including your retirement goals. As you look at them, you may want to consider converting from a traditional IRA to a Roth IRA.
Roth IRAs possesses characteristics that make them generally attractive planning tools; for example, they are not subject to required minimum distribution (RMD) rules during the life of the original account owner, which you can use as an estate planning tool for passing money to your heirs.
A combination of tax law changes and market conditions might make Roth IRAs even more attractive now, especially to investors who are in a position to pay tax due upon conversion with non-retirement plan assets.
Here are four reasons why now might be a good time to convert:
- If market volatility has depressed your portfolio’s value, you may owe less in taxes on any tax-deductible contributions you made to the traditional IRA as well as any tax-deferred earning that may have built up in the account over the years. A lower account value would typically result in a lower tax bill.
- If you expect your portfolio’s value to recover in the future, converting now would shield future earning from taxation. After conversion, any assets in the Roth IRA could potentially grow on a tax-advantaged basics and qualified distributions would be tax-free.
- If you expect future tax rates will be higher when you being to take distributions, converting and playing a lower tax now might make economic sense. Moreover, qualified distributions would be tax-free.
- Your non-spouse designated beneficiaries can let an inherited Roth IRA continue to potentially grow, taking no distributions until year 10 when they fully distribute the account with no tax consequences. After the passage of the SECURE Act in late 2019, non-spouse designated beneficiaries generally must distribute an inherited IRA by the end of the 10 th calendar year beginning the year after the IRA owner dies.
If you’re employer’s qualified retirement plan (QRP), such as a 401(b), offer a Roth designated account option, you also may want to consider making contributions to this account. Designated Roth account assets can be rolled over only to a Roth IRA or another employer’s designated Roth account if that plan accepts the rollover.
It’s important to remember that you can no longer recharacterize or undo a Roth IRA convesion. This is an important decision.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
