What are the Benefits of Converting Funds from my Traditional IRA to my Roth IRA?

December 21, 2023

Harnessing the power of Roth conversions in tax planning, individuals gain control over tax rates by converting traditional IRAs to Roth IRAs during historically low tax periods. This proactive approach enables the management of annual tax liability and the maintenance of a low adjusted gross income (AGI).
Roth conversions offer a dual benefit, eliminating mandatory distributions post-conversion and providing beneficiaries with nine years of tax-free growth under the 10-year rule. This strategic move not only preserves wealth but also offers significant advantages in estate planning, as the taxes paid during conversion relieve beneficiaries of potential future tax burdens.
The allure of tax-free growth becomes a reality with Roth conversions, offering individuals a lifetime and beyond of financial happiness with a 0% tax rate. In summary, Roth conversions emerge as powerful tools for tax and estate planning, providing unparalleled financial benefits and peace of mind for a secure financial future.

Full Transcript:

Hello, welcome to Arista Advice! Question of the week is: "Paul, what are the benefits of converting funds from my traditional IRA to my Roth IRA?"

Now is a good time to be discussing and reviewing converting money from an IRA to a Roth IRA because our current tax code is on sale. In two years and in 25 days, all the rates go back up. Now is a good time to be looking at the tax code and your assets, to know what we should adjust to have our assets positioned for optimization.

When we move IRA assets to a Roth IRA, we're moving assets from a future tax asset to a no tax asset in future years. One of the keys to effective tax planning is controlling the tax rates, and this can be achieved through Roth conversions. Converting portions of traditional IRAs to Roth IRAs at historically low tax rates, enables individuals and investors to manage their annual tax liability.

Second one is no RMDs - when you move from an IRA to a Roth IRA, there's no RMDs. There's no knock on the door at age 70 and a half, a half, 72 or 73, whichever one is applicable for you to start taking money out. In the Roth IRA, there is no withdrawals that are forced.
A third benefit is estate tax savings. This enables you to have a tax-free asset down the road. It's always nice to have a tax-free asset down the road when you get tax fatigue and you get tired of paying taxes, which happens to so many investors. And a fourth benefit is tax-free growth. With money in an IRA moved to a Roth IRA, those assets grow in a Roth IRA tax-free, and it's a wonderful thing to have tax-free growth.

Now remember, don't go run out and move all your money to an IRA to a Roth IRA. Speak with a professional to discuss and to review these important topics of moving IRA to Roth IRA while current tax rates are low and before they're expected to go up.

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