The main disadvantage to a Roth IRA is its contribution tax status. You pay full income taxes on money you put into this account, whether through contributions or conversions. For example, say that you convert $1.2 million from your traditional IRA to a Roth IRA. You would include that $1.2 million in your taxable income for that year, and would need available cash to pay the resulting taxes. Converting this amount will likely put you into the highest tax bracket of 35%.This tax status makes a Roth IRA good ...

To understand Mullaney and Garrett’s arguments, you really only need to understand how the progressive tax bracket works. The way the U.S. system is structured, you pay tax on income in increasing increments — which currently go from 0% to 37%. When you earn income from a salary, you’re taxed at different rates as you move through the income brackets: After the standard or itemized deductions, the first $11,925 is taxed at 10%, income from $11,926 to $48,475 is taxed at 12%, and so on. The average of those ...

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. A 62-year-old with $1.5 million in a traditional IRA may be wise to consider converting $150,000 per year to a Roth IRA to avoid required minimum distributions (RMDs). The annual withdrawals from retirement accounts that are mandated by RMD rules can raise your tax bill in retirement by adding to your taxable income, even if you don’t need or want the income to cover your expenses. Strategic Roth conversi ...

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. Legally, it’s never too late to make a Roth conversion. The IRS will let you move qualifying funds at any time as long as you can pay the resulting tax bill. For those in or near retirement, the bigger question is whether it’s a wise call to make a Roth conversion. On the one hand, a tax-free portfolio gives you significantly more control over your finances. On the other hand, you will have little opportu ...

`` SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. `` ``I’m 68 and recently retired and have about $1.4 million in accounts intended for retirement ($1.2 million in a Traditional IRA and $110K in a Roth). I also am receiving about $47,000 annually in Social Security benefits. My RMDs are scheduled to start in 2027, and as a result, my financial advisor and I are considering doing some annual Roth conversions prior to 2027. It all sounds like a good plan t ...

Financial advisor and columnist Brandon Renfro SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. I am 70 and I have $1.4 million in traditional IRAs. Is it best to do $160,000 in Roth conversions for the next 1-3 years to reduce my high RMDs in about 5-10 years? That would put me in the 24% tax bracket and $330 Medicare premium rate. Please give me advice. – Dennis I do think you’re on the right track to at least be considering this. There are plenty of ...

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. There is no age limit on Roth conversions, so you can transfer pre-tax savings into a Roth IRA regardless of your age or retirement status. As long as you have qualifying funds in a pre-tax portfolio, you can move them to an after-tax Roth account. That doesn’t mean a conversion is always wise. For households in retirement, the benefits of a Roth conversion are often relatively minor compared with the cos ...

Core Insights - Converting a 401(k) into a Roth IRA offers tax-free qualified withdrawals and exemption from required minimum distributions (RMDs), providing flexibility and potential tax savings in retirement [1][5] Group 1: Roth Conversion Benefits - Roth conversions allow for tax-free withdrawals and can help avoid RMDs, which start at age 73 and can increase tax liabilities due to ordinary income treatment [5][6] - Converting gradually over a decade can mitigate tax impacts compared to a lump-sum conversion, which could push individuals into the highest tax bracket [2][8] Group 2: RMDs and Tax Implications - RMDs can significantly increase taxable income, potentially raising the marginal tax rate; for example, a $1.3 million 401(k) could lead to an initial RMD of over $104,000, increasing the tax rate from 12% to 24% for a single filer with additional income [6][5] - The RMD age will shift from 73 to 75 starting in 2032, affecting withdrawal strategies for retirees [6] Group 3: Conversion Strategies - A lump-sum conversion of $1.3 million would incur over $430,000 in taxes, while annual conversions of $130,000 could significantly lower the tax burden [8] - Consulting a financial advisor is recommended for personalized strategies regarding Roth conversions and RMD planning [3][7]