- ORIGINAL NEWS
This is the ‘sweet spot’ for Roth individual retirement account conversions, expert says
- SUMMARY
Consider a Roth individual retirement account (Roth IRA) conversion if you plan to retire soon to potentially minimize taxes.
This strategy involves moving pretax or nondeductible IRA money into a Roth IRA, which offers tax-free growth in the future.
The downside is you’ll pay taxes upfront on the converted balance.
The ideal time to do this conversion is early in retirement when your income is typically lower, reducing your upfront tax liability.
Converting while your income is still within the lower tax brackets is also beneficial, as the provisions from Trump’s tax overhaul may expire in 2025.
However, you need to be aware of income-related monthly adjustment amounts (IRMAA) for Medicare Part B and Part D premiums.
These premiums are based on your modified adjusted gross income (MAGI), which includes converted IRA funds.
There is a two-year lookback period, so a high income from a Roth conversion could potentially boost your IRMAA in the future.
For instance, the standard Medicare Part B premium is $174.70 in 2024, but it could be higher if your MAGI exceeds certain income limits ($103,000 for individuals or $206,000 for joint filers in this case).
Converting a large amount from a pretax IRA could push you into a higher IRMAA bracket, resulting in increased premiums.
In conclusion, a Roth IRA conversion can offer tax savings during retirement, especially if done when your income is low.
However, you need to consider the potential impact on your Medicare Part B and Part D premiums, as converting a large amount could lead to higher premiums due to increased MAGI.
- NEWS SENTIMENT CHECK
- Overall sentiment:
positive
Positive
“Converting early in retirement while your income is lower could lower your upfront tax bill.”
“Roth conversions transfer pretax or nondeductible IRA money to a Roth IRA, which kickstarts future tax-free growth.”
Negative
“But you need to be mindful of income-related monthly adjustment amounts, or IRMAA, for Medicare Part B and Part D premiums.”
“Since Roth conversions can boost income, it can also affect income-related monthly adjustment amounts, or IRMAA, for Medicare Part B and Part D premiums, May said.”