Core Insights - The article discusses strategies for Roth IRA conversions, particularly during market downturns, to minimize tax liabilities and maximize tax-free growth potential when markets recover [1][3]. Group 1: Roth IRA Conversions - Converting to a Roth IRA while asset values are low can lead to lower tax bills on the conversion amount, with potential for tax-free growth as markets rebound [1]. - It is advisable to work with an accountant or financial adviser during the Roth conversion process to navigate complexities [1]. - Roth conversions increase adjusted gross income, which can impact Medicare premiums and Social Security taxation [2]. Group 2: Tax Planning Strategies - Individuals should estimate total income, including Social Security, pensions, dividends, and capital gains, to determine their federal tax bracket for 2026 [4]. - Retirees are encouraged to start planning for their 2026 tax bill now, as strategic planning can help reduce future tax liabilities [5]. - It is recommended to convert just enough funds from traditional retirement accounts to stay within the 12% tax bracket [2]. Group 3: Required Minimum Distributions (RMDs) - Skipping RMDs can result in significant tax penalties, with penalties ranging from $1,160 to $2,900 [8]. - RMDs are mandatory withdrawals for individuals aged 73 and older, with specific rules on timing and amounts [9][10]. - Automating withdrawals and consulting with accountants can help manage RMDs effectively [11]. Group 4: Charitable Contributions and Deductions - Qualified Charitable Distributions (QCDs) allow individuals to donate up to $111,000 from their traditional IRA directly to charities, reducing taxable income [15]. - The standard deduction for tax year 2026 will increase to $16,100 for single filers and $32,200 for married couples filing jointly [16]. - Utilizing the higher SALT deduction limit of $40,000 can significantly impact taxable income, especially for retirees in high-tax states [18][19].

Converting your traditional individual retirement arrangement (IRA) or 401(k) account to a Roth IRA often appears to be a clear financial win. Pull some capital from your retirement accounts, pay a little tax upfront, pop it into a Roth IRA and enjoy tax-free growth for the rest of your life. If your investments grow significantly after conversion, you could be saving a pretty penny on taxes. Sounds simple and savvy, right? A Roth IRA is a retirement savings account where contributions are taxed upfront, ...

Core Insights - The article discusses the implications of turning 65 and transitioning to Medicare, particularly regarding Health Savings Accounts (HSAs) and the potential loss of tax advantages associated with them [1][2][3]. HSA and Medicare Transition - Upon turning 65 and enrolling in Medicare, individuals lose the ability to contribute to their HSAs, which can impact their retirement savings strategy [1][3]. - While tax-free withdrawals for qualified medical expenses remain available, the inability to add funds may lead to a decrease in account balance over time unless investments are managed wisely [3][4]. Employer Health Plans and HSA Contributions - Some individuals may choose to remain on their employer's health plan while also enrolling in Medicare Part A, but this decision prevents further HSA contributions [4]. - Flexible Spending Accounts (FSAs) can serve as an alternative for tax-advantaged savings for those who continue working while on Medicare, with a contribution limit of $3,400 for 2026 [5]. Long-term Tax Planning - For those who enroll in Medicare and continue working, long-term tax planning becomes essential to manage expected tax liabilities throughout retirement [5][6]. - A Roth conversion is suggested as a strategy to maintain tax-free growth and withdrawals, particularly beneficial for high-income retirees facing potential tax rate increases in the future [7].

Core Insights - The article discusses a couple's financial planning for early retirement, focusing on downsizing their home and managing income sources while addressing health and lifestyle changes. Financial Planning - The couple plans to sell their home valued at $1 million and downsize to an apartment in a no-income-tax state, which could help with their financial situation and Roth conversion strategy [4][17]. - They have a combined 401(k) balance of $1.1 million and $800,000 in stocks, along with $500,000 in home equity, indicating a strong financial position for retirement [6][15]. - The couple is considering part-time work as a Lyft driver, which could generate an additional $30,000 a year, providing flexibility while managing living expenses [2][12]. Retirement Timing and Income - The individual plans to stop working at age 60 while the spouse continues for two more years, utilizing the Affordable Care Act for health insurance until they reach 65 [5][10]. - Social Security benefits will be claimed at age 70, with the maximum monthly benefit being $5,108 for those who wait until that age [13][14]. Health and Lifestyle Considerations - The couple aims to focus on health and diet post-retirement, recognizing the importance of maintaining physical well-being as they age [3][11]. - The stress from current jobs is a significant concern, and transitioning to retirement is seen as a way to alleviate this stress, although it may introduce new challenges [7][9]. Tax and Insurance Strategy - The couple is considering a Roth conversion strategy to manage their tax liabilities and maximize insurance subsidies, particularly in light of potential changes to ACA premium tax credits [16][17]. - The article highlights the importance of planning annual Roth conversions to stay within income thresholds and manage ACA premiums effectively [16].

Core Viewpoint - A Roth conversion is considered a strategic option for retirement income planning, particularly for individuals in lower tax brackets, as it can lead to tax savings in the long run [4]. Group 1: Roth Conversion Considerations - The individual is over 59 ½, which means they are not subject to the 10% early withdrawal penalty for distributions taken less than five years after a Roth conversion [3]. - There are three different five-year rules associated with Roth IRAs, which can lead to confusion [2]. - The primary reason for a Roth conversion is to save on taxes, especially for individuals with a stable income from pensions [4]. Group 2: Income and Tax Bracket Analysis - The individual has an annual income of $65,000 from a pension, placing them in a marginal tax bracket of 22% if single, or 12% if married filing jointly [5]. - Given the nature of pension income, it is unlikely that the individual's nominal income will decrease in the future, suggesting stability in their tax bracket [6]. - The Tax Cuts and Jobs Act provisions are set to expire at the end of 2025, which may lead to increased income tax rates unless Congress acts [7]. Group 3: Strategic Planning - It may be beneficial for the individual to gradually fill their current tax bracket with Roth conversions over several years [8]. - Consideration of state income taxes and potential relocation to a state without income tax is also advised [8].

If you decide a Roth conversion is worth it for you, it is critical to do it when your tax rate is lower than you expect it to be in retirement. That could be a low-income year or a year in which you lost a job. - MarketWatch illustration/iStockphoto Welcome to Day 7, the final installment in MarketWatch’s seven-part money challenge. We’ve published one tip a day for seven business days. We hope these ideas have inspired you to take control over some aspects of your finances in 2026 and to set yourself up ...

Core Insights - High earners are facing potential tax increases after 2025 due to the expiration of major provisions of the Tax Cuts and Jobs Act, which could lead to higher marginal income tax rates, lower estate and gift tax exemptions, and changes in deductions [1] Group 1: Tax Planning Strategies - Maximizing deductions through lumping charitable gifts is advised, as deductions apply only after contributions exceed 0.5% of adjusted gross income (AGI), with a maximum deduction of 35% of AGI for gifts [3][4] - High-income families are encouraged to consider lumping charitable gifts or using donor-advised funds (DAFs) to capture larger deductions in 2025 while maintaining flexibility in distributing funds to charities [4] - Shifting income into 2025 is recommended to lock in lower tax rates, with strategies including receiving year-end bonuses in December instead of January and sending invoices earlier for business owners [6][8] Group 2: Roth Conversions - Partial Roth conversions are suggested to reduce future tax burdens and lock in current tax rates, allowing for tax-free growth and withdrawals later [7][9] - A methodical approach to Roth conversions includes estimating 2025 income, selecting a maximum tax bracket, and converting only enough to stay within that bracket by year-end [9]

Core Insights - The article discusses the complexities of tax and estate planning, particularly for retirees like James and Andrea, who have taken significant steps to prepare for their financial future and long-term care needs [1]. Group 1: Estate Planning - James and Andrea have established comprehensive estate planning documents, including wills, durable powers of attorney, living trusts, and have communicated their health care and funeral wishes with family and professionals [2]. - Their assets include a fully paid-off home valued at $2 million, art worth $100,000, a brokerage account with $500,000, and an emergency savings account of $100,000, all placed in a living trust to avoid probate [3]. Group 2: Retirement Accounts - The couple is considering consolidating and converting $2.8 million from traditional IRAs to Roth IRAs, which would allow for tax-free withdrawals under certain conditions [4]. - Roth IRAs do not have required minimum distributions (RMDs) during the account holder's lifetime, providing flexibility in withdrawals and allowing the account to grow tax-free [5]. Group 3: Tax Implications - Converting funds from traditional IRAs to Roth IRAs will incur taxes, and the couple currently has an annual income of approximately $235,000 from RMDs, a small pension, and Social Security benefits [6]. - The tax rate for married couples filing jointly is set to increase from 24% to 32% in 2026 at an income threshold of $403,550, indicating a strategic opportunity for conversions before the tax increase [6].

Core Idea - A Roth conversion allows individuals to transfer funds from a traditional IRA to a Roth IRA, which incurs income tax on the converted amount in the year of conversion [3][4][5]. Tax Implications - The amount converted from a traditional IRA to a Roth IRA is included in gross income, increasing tax liability for that year [6][7]. - Typically, taxes on traditional retirement accounts are deferred until withdrawals are made, but a Roth conversion triggers immediate tax consequences [4][5]. Payment Options for Taxes - Taxes on a Roth conversion can be paid using either the converted funds or external sources. Using non-IRA funds is often recommended to maximize retirement savings [1][7]. - Many individuals opt to use the converted funds to cover the tax bill, especially if they lack external resources [7].

Converting your 401(k) to a Roth portfolio will allow you to entirely avoid RMDs. This is a legitimate form of tax planning. However, often there’s a difference between whether you can do something and whether you should; whether it’s allowed, and whether it’s in your long-term best interest. For example, say that you’re 62 years old. You have $1.6 million in a 401(k). If you convert this portfolio to a Roth IRA 10% at a time, you can avoid required minimum distributions on your $1.6 million. However, par ...