What You Need to Know about Converting a Traditional IRA to a Roth

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What You Need to Know about Converting a
Traditional IRA to a Roth
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• Are you thinking about converting your
  traditional IRA into a Roth IRA? You dont have
  to do much research before you realize that the
  process is clear as mud.
• Lets bring some clarity to the situation. The
  benefits of converting an IRA depend upon several
  factors that well look at one at a time.
• 1 Changes to Tax Law
• Upcoming tax reform is a major unknown and,
  therefore, a major issue.
• President Trump and the Republican-controlled
  Congress have set an agenda to lower tax rates
  and eliminate many existing tax deductions.

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• Although they desire to overhaul the current tax
  system, they may have to settle for temporary tax
  cuts instead of permanent, comprehensive reform.
• Any changes to tax law may affect what happens
  with IRA conversions, and those changes, in turn,
  will make your decision to convert more or less
  prudent.
• Is that vague enough for you? Good.
• Heres the bottom line If you can wait to
  convert until after these tax changes have taken
  effect, then its probably better to wait.
  Maximum rates are likely to fall, and you can
  potentially capture more benefits by converting
  next year.

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• However, if you do opt to convert now, then be
  sure to keep your various options on the table.
  For example, you can later change your mind and
  undo the conversion by transferring converted
  funds back to a traditional IRA.
• This handy recharacterization loophole does
  have a catch. You must convert back by October 15
  of the year following the conversion.
• 2 Present Future Rates
• The second thing you should consider is present
  and future tax rates. Though no one can precisely
  predict the future, some factors remain constant.

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• On one hand, if you expect to pay the same rate
  (or higher) in retirement than you currently do,
  switching to a Roth IRA makes sense. Just avoid
  tapping into IRA funds to pay the tax bill at
  conversion.
• On the other hand, if your retirement tax rate
  may be lower, think twice. Tax-free Roth payouts
  wont benefit you as much because your tax on the
  conversion may exceed your future savings.

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• 3 Partial Conversions
• Once you decide to convert to a Roth, you dont
  have to do it all at once. You can transfer money
  from a traditional IRA to a Roth in increments,
  and in so doing, you will also stagger the tax
  hits.
• This approach is particularly helpful if extra
  conversion income would disqualify you for
  certain tax benefits. Examples include write-offs
  for personal exemptions, itemized deductions, or
  passive losses.
• In this same vein, you can also use different
  Roths for different classes of assets. You can
  separate stocks, bonds, and real estate in order
  to have maximum flexibility.

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• 4 Assets
• If you have assets that you expect to go up in
  value, then converting can deliver huge benefits.
• By switching to a Roth before those assets fully
  appreciate, you can take advantage of a lower
  conversion tax. This tactic also works for IRA
  assets that are currently depressed in value.
• With Roth IRAs there is no required minimum
  distribution once you reach the age of 70 ½.

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• However, if you are older than 70 ½ at the time
  of conversion, you must take a Required Minimum
  Distribution (RMD) for the year you switch.
  (Note The balance of the traditional IRA at the
  end of the preceding year determines the required
  payout.)
• 5 Higher Medicare Premiums
• One last consideration is the relationship
  between IRA conversion and Medicare premiums.
• Additional income from an IRA conversion can
  trigger higher Medicare premiums.

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• On top of regular Parts B and D premiums,
  individuals whose modified adjusted gross income
  exceeds 85,000 for individuals (or 170,000 for
  joint filers) will owe a monthly surcharge.
• Furthermore, switching to a Roth this year could
  lead to higher premiums in 2019 because income
  from the conversion is included in the
  calculation for modified AGI. For this reason, a
  conversion can cause more of your Social Security
  benefits to be taxed.

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• Wrapping Up
• Youve got a number of factors to consider when
  you are converting from a traditional to a Roth
  IRA. You also stand to reap the benefits when you
  convert at the right time in the right way.
• Working with a tax professional is the best way
  to find out if this conversion is a good fit for
  you.
• An expert CPA can assess the long-term
  ramifications of the switch based on your
  financial situation. We can work with your
  financial advisor to analyze the costs

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• and benefits of a potential conversion, both from
  the investment perspective and from the tax
  perspective.
• If the water seems muddy to you, then give us a
  call at [phone]. We can answer your
  questions and help you make a smart plan of
  attack.
• Culpepper CPA in Knoxville is a full-service tax,
  accounting business advisory firm based in
  Knoxville. We help our clients to make confident,
  tax-savvy decisions. Our accountants in knoxville
  TN began their careers in the fast-paced culture
  of global and national firms. We now believe in
  personalized advice and custom accounting
  solutions. If you are looking for tax preparation
  in knoxville TN or bookkeeping services or
  payroll services in Knoxville TN, contact us
  today.