Q. I transferred my 403 (b), 457, and Roth accounts from a former employer to my current employer 15 years ago. 403 (b) and 457 are now in an IRA. I would like to start handing over some of the money, $ 10,000 a year, from this IRA to Roth. Can I use the Roth I already have? When I retire in five years, my pension and Social Security will keep me on a high tax bracket. I worry about taxes because all my accounts are pre-tax. I am 69 years old.
– Retired
A. Let’s review the workings of Roth’s conversions and their pros and cons.
As you said, taxes are the key to consider before making a move.
A conversion can reduce taxes in the future by eliminating the requirement to make minimum annual distributions, said Cynthia Fusillo, a certified public accountant at Peapack Private Wealth Management in New Providence.
For you, a conversion seems appealing, as you plan to be on a high tax bracket, even in retirement, he said.
Traditional IRA homeowners should start taking annual retirements, based on actuarial life expectancy tables, at age 72. If he doesn’t, the IRA owner must sanction 50% of the offense, Fusillo said. Roth IRAs are attractive in large part because there is no such minimum withdrawal requirement.
“Your Roth earnings continue to grow tax-free, just like in a traditional IRA, and that’s also appealing to those who want to leave all or part of their money to the heirs,” he said.
When it comes to conversion, you’ll need to go ahead with funds to pay taxes today, so it’s important to assess how much it will be and that you have a non-IRA fund to pay tax on. conversion, Fusillo said.
“Because there is a tax associated with the conversion, taxpayers will often look for a year in which they will be in a lower tax bracket,” he said. “For younger taxpayers, becoming a Roth restricts when income can be withdrawn (usually not for five years) before age 59 and a half.”
You can certainly withdraw $ 10,000 a year as you requested and convert them each year into your existing Roth account, Fusillo said.
“Without knowing the size of your traditional IRA, it is difficult to know if you will achieve the goal of trying to minimize retirement income at this conversion level, which means you will still be able to keep a sizable balance in your traditional IRA. . when you turn 72, ”he said. “But you can definitely convert anything you want as long as you’re prepared for the associated tax.”
These rules can be complex, so we recommend that you consult your tax advisor before making a decision.
Email your questions to [email protected].
Karin Price Mueller writes the Bamboozled NJ Advance Media column and founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com‘s weekly e-newsletter.