Should I Convert My IRA to A Roth IRA (Part 3) Benefits of a Roth IRA Conversion
Part 1: https://youtu.be/Zw1PuU3a4xU
Part 2: https://youtu.be/BM3hLZGWe7g
Over the last few weeks we have looked at who should convert their IRA to a Roth IRA and we have discussed how to convert your IRA to a Roth IRA. Today, we are going to dive into at the benefits of converting your IRA to a Roth IRA. Most investors and individuals planning for retirement understand that Roth IRA’s are tax free and that having a Roth IRA is a benefit to ones Retirement planning, but what REALLY are the benefits of having and converting to a Roth IRA for your Retirement Planning?
1. Pay Your Taxes Now, Not Later
Today’s taxes are at ultra low rates compared to recent history and the rest of the world, but with government spending, over burdened social programs, and government budget deficits running in the tens of trillions, taxes are inevitably going to rise. If they don’t, we are in for a world of hurt. So, what can you do? Start using today’s tax code to your advantage. Convert your IRA, old 401k’s and other qualified retirement plans to Roth IRA’s. This means you’ll pay taxes today, but in the future when taxes rise, that Roth IRA money will be tax free. I promise you that your future self will thank you.
2. Tax Free Inheritance
When you pass away, whatever is left in your 401k, IRA, or other qualified retirement plan is going to pass to your beneficiaries. If you are married, it will pass to your spouse. If your children or some other individuals are your primary beneficiary, they will inherit your IRA. Either way, both of these groups would have to pay taxes on your IRA. BUT, not your Roth IRA. Your spouse could actually continue the Roth IRA as their own Roth IRA and your children could inherit the Roth IRA as a beneficiary Roth IRA. In both circumstances the Roth IRA is tax free (Distributions are subject to different IRS schedules. Please consult with your CPA or tax advisor).
3. Tax Free Retirement Income
This is where I use IRA or 401k to Roth IRA conversions the most. Planning out tax free retirement income. When you get to retirement, odds are that Social Security will not be enough income to cover your retirement expenses. You are going to have to use your retirement investments for retirement income. If you can get those retirement investments tax free in a Roth IRA, that means your retirement income will be tax free as well. If your retirement income is tax free, then your social security provisional income will be low which means your social security tax could be zero as well. Tax free retirement income is what I like to see!
There are so many benefits to a tax free retirement but to me these are the top 3. If you have more questions about converting your IRA to a Roth IRA, please contact me through the links below. Thank you so much for watching and reading!
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