High but poorly-planned taxes on IRA RMDs and other taxable distributions can erode your portfolio. Roths are tax free, but you have to pay the tax on the conversion first to there. The trick is doing conversions at low or zero tax brackets to maximize the net conversion of the ROTH. Camarda calls this “tax arbitrage” – getting to tax free at little or no tax cost. High tax ROTH conversions are easy – but truly tax efficient conversions benefit from a more methodical approach.
Watch Dr. Camarda’s mini-course to learn his PhD grade best practices using Camarda’s proprietary ROTHalyze® system – registered with the US Patent & Trademark Office – a rigorous system built by a “TaxMaster” with a Master’s degree in Tax Law from Georgetown Law.
Press Play Above to Watch our Free Mini-Class or click the button to get a personalized strategy call with Dr. Camarda’s team to see how this proven strategy can protect your savings!
Why Choose a Roth IRA Over a Traditional IRA?
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Roth IRAs Offer Tax-Free Withdrawals
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Roth IRAs grow tax-free, and qualified withdrawals are tax-free too, unlike traditional IRAs or 401(k)s, which are fully taxable on withdrawal.
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Traditional IRAs Increase Your Taxable Income
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With traditional accounts, retirement withdrawals add to your taxable income, which could push you into higher tax brackets and impact Medicare and Social Security benefits.
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Convert to Roth Early for Flexibility
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Converting before taking Social Security can help manage your tax bracket, reduce income tax on benefits, and preserve Medicare premium savings.
The Financial Benefits of Roth Conversions
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Roth Conversions Build Tax-Free Wealth
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By converting to a Roth, you effectively “create wealth” through tax savings, amplifying investment returns with tax-free income in retirement.
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Protect Against Future Tax Hikes
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Given likely U.S. tax rate increases, converting now can lock in today’s lower tax rates and protect more of your wealth from future taxation.
Smart Strategies for Roth Conversions
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Work with a Skilled Tax Professional
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Roth conversions require complex calculations. A qualified tax advisor ensures your strategy minimizes tax liability while optimizing for long-term benefits.
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Use a Multi-Year Strategy
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Spread conversions over several years to avoid steep tax jumps, with flexibility to adjust based on changes in income and tax law.
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Plan Ahead for the 5-Year Rule
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Roth withdrawals are tax-free only after five years from the first contribution, so plan conversions early if you’ll need these funds soon.
Best Practices for Roth IRA Beneficiaries
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Use Trusts Carefully
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Trusts require “flexible spending” provisions for Roth IRAs to avoid unintended taxes. Consult a legal expert to set up a compliant trust.
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Spousal Inheritance of Roth IRAs
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A spouse can inherit a Roth IRA with tax-free treatment, making it an ideal option for wealth transfer.
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Extended 10-Year RMD Rules for Other Beneficiaries
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Non-spouse beneficiaries can wait up to 10 years before taking distributions, allowing continued tax-free growth.
Final Thoughts
Roth conversions can unlock significant tax-free growth for retirement, providing both financial security and flexibility. Consult your tax advisor or create a customized conversion plan that fits your unique financial landscape with Dr. Jeff Camarda’s team by clicking the button below!