How Lower Stock Values May Lower Your IRA Distribution Taxes and Increase Your Income
One thing you can consider to save on federal income taxes during your retirement is to convert your qualified tax money in a Roth account. By doing this, you could shield any appreciation on these assets from federal income taxes. Additionally, distribution from these assets will come to you free of income taxes as well. This, of course, assumes that the holding period rules are satisfied (age 59 ½ and the five year holding period).
Unlike the traditional IRA’s the owner of a Roth is not required to take distributions at age 70 ½. Also, any distributions you do take from Roth accounts are not counted for purpose of figuring income taxes on Social Security benefits. This provides Roth owners with another tax benefit that cannot be achieved from a traditional IRA.
Although an income tax must be paid if you convert your retirement money to a Roth, the potential for future tax savings could make this a strategy you may be well pleased with.
Let’s consider an example where a taxpayer converts $300,000 of traditional IRA money to a Roth IRA. Let’s assume that the Roth money is invested in a diversified portfolio of investments. If we assume over the long term that the investments grew at 10% for 15 years, the
accumulated value of the portfolio would be $1.2 million. Although the portfolio grew by $900,000, no income tax is paid in the future. Although your beneficiaries are required to take minimum distributions based upon their life expectancies, any future appreciation in the account will come to them free of income taxes. Please remember that investments in traditional and Roth IRA’s are subject to various levels or market risk, depending on the type of investments held in the accounts. Therefore, you should never assume that your IRA investments will perform in the same way as
was explained in this example. Your results will likely vary from this example.
There are right and wrong ways to convert your funds to a Roth IRA.
Please call Lee Saalfeld at 918-641-2500, for guidance in the right direction.
Recent comments