One big misconception a lot of people have about retirement is that they won't have to pay a lot of taxes. In reality, there are many different income sources that the IRS could get a piece of. For example, dividends you receive in a regular brokerage will be taxed, and you'll face capital gains taxes if you sell investments at a profit. And if you have your retirement savings in a traditional IRA or 401(k) plan, those withdrawals will be taxable as well. Even your Social Security benefits may be taxable, ...

Because of our income bracket – we make over $350,000 per year – we cannot contribute to a Roth anymore. We’re 61 and 62, and planning to work until at least 67. Do we qualify to convert our 401(k)s into Roths a little at a time or do we have to wait until we retire? -Fariba You’re right that earning a combined income of $350,000 puts you over the Roth IRA income limit. However, there’s no income limit on conversions. In fact, anyone can convert any amount of tax-deferred savings at any time. Nothing is st ...

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. There is no legal or regulatory age restriction on Roth conversions, so it's not too late in that sense. Generally speaking, a Roth conversion may make more sense for a younger saver. However, there are a number of other considerations that may be more important to keep in mind. For instance, unless you are likely to be in a higher tax bracket after retirement, or you plan to leave your retirement account ...

Core Insights - Roth retirement accounts, such as Roth IRAs and 401(k)s, provide tax-free investment gains and greater flexibility in retirement, as they do not require minimum distributions and allow tax-free withdrawals [1] Group 1: Roth Conversion - Individuals who missed direct contributions to a Roth account or have high income may consider a Roth conversion to benefit from tax-free growth [2] - A Roth conversion can lead to a significant tax bill in the year of conversion and potentially higher Medicare premiums in the future [3][4] Group 2: Medicare Implications - A Roth conversion can increase income above certain thresholds, resulting in income-related monthly adjustment amounts (IRMAAs) for Medicare premiums, affecting single filers with a modified adjusted gross income (MAGI) above $109,000 and married filers above $218,000 [5] - The thresholds for IRMAAs are relatively low, making it easy for a Roth conversion to trigger additional costs for Medicare premiums [5] Group 3: Caution and Strategy - Caution is advised when considering a Roth conversion due to potential tax implications and increased Medicare costs [6][8] - It may be beneficial to perform smaller Roth conversions over several years rather than a large conversion in one year, and consulting a tax professional is recommended to optimize timing and minimize tax impact [8]

svetikd / Getty Images New 2026 tax brackets could impact retirees' financial strategies. Key Takeaways The IRS has released the 2026 federal income tax brackets, which will apply to tax returns filed in 2027. Understanding your tax bracket can help you make smarter moves, such as when to do a Roth conversion and what your retirement withdrawal strategy should be. Experts suggest performing Roth conversions in lower-income years, which can reduce tax burdens for both you and your heirs. The Inter ...

Core Insights - Converting funds from a tax-deferred retirement account to a Roth IRA can significantly increase Medicare premiums for Part B and Part D due to income bracket adjustments [2] - Strategies exist to mitigate potential premium increases, such as converting funds at least two years prior to Medicare enrollment and employing methods to lower reported income [3] Medicare Premium Structure - Most Medicare recipients pay a standard premium for Part B, which is adjusted annually based on healthcare spending projections [4] - Premiums are increased for individuals with Modified Adjusted Gross Income (MAGI) above certain thresholds, using the Income-Related Monthly Adjustment Amount (IRMAA) [4][5] MAGI and Premiums - MAGI includes total gross income, including Roth conversions, tax-exempt interest, and some non-taxable Social Security benefits, with applicable deductions added back [5] - For 2024, the standard premium for Part B is $174.70 for individuals with MAGI of $106,000 or less, with higher premiums for increased MAGI levels [6] Premium Breakdown - The breakdown of Part B premiums based on MAGI is as follows: - $106,000 or less (Single) / $212,000 or less (Joint): $185 - $106,000 to $133,000 (Single) / $212,001 to $266,000 (Joint): $259 - $133,001 to $164,000 (Single) / $266,001 to $330,000 (Joint): $364.30 - $164,001 to $500,000 (Single) / $330,001 to $750,000 (Joint): $469.60 - $500,001+ (Single) / $750,001+ (Joint): $628.90 [6] - The difference in premiums between couples earning $206,000 and $760,000 can exceed $10,000 annually per insured [6]

Core Insights - The upcoming tax season will serve as the first evaluation of the benefits from the Trump administration's tax law, referred to as the "One Big Beautiful Bill" [2][4] - Significant changes in tax deductions and credits are expected to lead to higher income-tax refunds for households, with projections suggesting an increase of up to $1,000 in refunds for 2026 [5][14] - The new tax law introduces various deductions, including those for overtime pay, tips, and a senior bonus, which create new planning opportunities for taxpayers [4][18] Tax Breaks and Deductions - Specific income limits apply for various tax breaks, such as $75,000 for individuals aged 65 and older seeking a $6,000 senior bonus deduction, and $500,000 for households wanting the full $40,000 state and local tax deduction [1][7] - The SALT deduction has quadrupled to at least $40,000 through 2029, which will lead to an increase in itemized deductions for 5 to 7 million additional households [10][14] - Taxpayers may need to "bunch" charitable contributions to maximize itemized deductions before the eligibility for such deductions decreases in 2026 [12][13] Refunds and Withholdings - The average tax refund for the current year was $3,052, and the upcoming tax season is projected to be the largest refund season ever [5][14] - Critics argue that larger refunds indicate overpayment of taxes throughout the year, suggesting that individuals should adjust their withholdings to avoid this situation [15][16] - Changes in withholding tables in 2026 may allow taxpayers to see the benefits of tax cuts reflected in higher take-home pay [17] State Tax Implications - States may not uniformly adopt the new federal tax changes, leading to a patchwork of state tax laws that could affect the application of new federal deductions [20][21] - Some states, like Michigan, have already aligned their tax laws with the new federal tax breaks, while others are still determining their approach [22] New Tax-Advantaged Accounts - The introduction of "Trump Accounts" allows parents to open tax-deferred accounts for children under 18, with a $1,000 seed contribution for U.S. citizen babies born between 2025 and 2028 [24][25] - While parents cannot claim a tax deduction for their contributions, there may be potential tax benefits depending on employer contributions and IRS regulations [25][26]

Core Insights - Required Minimum Distributions (RMDs) pose challenges for retirees, and converting to a Roth IRA can alleviate these concerns [1][3] - A Roth conversion allows individuals to avoid RMDs since taxes are paid upfront, but this may lead to higher costs depending on the tax situation [2][8] RMD Overview - RMDs apply to pre-tax retirement portfolios starting at age 73, requiring minimum annual withdrawals to ensure tax payments on retirement funds [3][4] - The withdrawal amount is determined by the portfolio's value and the account holder's age, with the rule applying to each portfolio separately [4] Financial Implications - For example, a 60-year-old with a $1.1 million IRA could see the account grow to approximately $2.99 million by age 73, necessitating a withdrawal of $112,890 and a tax payment of at least $17,000 [5] - Converting to a Roth IRA eliminates RMD requirements, allowing funds to remain invested until needed [6][7] Roth Conversion Details - A Roth conversion involves transferring funds from a traditional IRA to a Roth IRA, providing tax-free withdrawals in retirement and exemption from RMD rules [7] - The primary drawback of a Roth conversion is the upfront tax liability on the converted amount, which must be paid in the year of conversion [8]

Core Insights - The IRS has released the federal income tax brackets for the tax year 2026, which will impact tax returns filed in 2027, highlighting the importance for individuals, especially retirees, to understand their tax positions [2][3] Tax Brackets Overview - The new tax brackets for single filers and married couples filing jointly are as follows: - 37% for income over $640,601 (single) and $768,701 (married) - 35% for income between $256,226 and $640,600 (single) and $512,451 to $768,700 (married) - 32% for income between $201,776 and $256,225 (single) and $403,551 to $512,450 (married) - 24% for income between $105,701 and $201,775 (single) and $211,401 to $403,550 (married) - 22% for income between $50,401 and $105,700 (single) and $100,801 to $211,400 (married) - 12% for income between $12,401 and $50,400 (single) and $24,801 to $100,800 (married) - 10% for income of $12,400 or less (single) and $24,800 or less (married) [4] Strategic Financial Planning - Understanding tax brackets can guide retirement withdrawal strategies, helping individuals decide which accounts to withdraw from and in what order to minimize tax liabilities [5] - Most retirement income sources, including Social Security, pensions, and RMDs from IRAs and 401(k)s, are taxable, making the timing and order of withdrawals critical to managing tax bills [6][8] Importance of Tax Awareness - Distributions from retirement accounts like 401(k)s and traditional IRAs are taxed as ordinary income, and failing to monitor tax brackets can lead to unintentional higher tax rates due to increased taxable income from these distributions [7] - Knowing projected income from retirement accounts in 2026 is essential for understanding tax implications and planning for tax bills in 2027 [8] Roth Conversion Strategy - Experts recommend performing Roth conversions during lower-income years to potentially reduce tax burdens for both individuals and their heirs [9]

Core Insights - The article discusses the tax implications of converting funds from a tax-deferred retirement account to a Roth account, highlighting that converted funds are treated as taxable income in the year of conversion, potentially increasing the taxpayer's tax bracket and resulting in a significant tax bill [2][6]. Tax Implications of Roth Conversion - Converting funds from a tax-deferred account, such as an IRA, to a Roth account can significantly impact current taxes due to the converted funds being treated as taxable income [6]. - A large Roth conversion can push a taxpayer into a higher income tax bracket, increasing the overall tax owed [6]. Social Security Benefit Taxation - Social Security benefits may be partially taxable, with a maximum of 85% of benefits subject to taxation depending on the recipient's combined income [4][7]. - The IRS uses a formula based on combined income to determine the taxable portion of Social Security benefits, which includes half of the annual benefit, adjusted gross income (AGI), and any non-taxable interest [5][7]. Combined Income Calculation - To calculate combined income, half of the annual Social Security benefit is added to the AGI and any non-taxable interest, which can affect the taxation of Social Security benefits [5][7]. - If combined income exceeds a certain threshold, up to 85% of Social Security benefits may become taxable [7].