Qualified Opportunity Funds

6 Reasons Why Now May be the Best Time in History to Convert to a Roth IRA

Wealth Management

Pete Bender
Pete Bender CPA, CFP Leader of Yeo & Yeo Wealth Management Wealth Management

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One of the most commonly heard financial planning topics for 2020 is converting a Traditional IRA to a Roth IRA. The reason most often cited for doing so is the anticipation of incomes being lower this year and therefore the tax on conversion could be lower. Here are six factors that are making Roth IRA conversions more attractive than ever before.

1. Protection from a future tax rate increase
Based on the current financial situation in our country, many are predicting tax increases in the future. Paying tax on Roth conversions now at lower rates may pay off for you and your heirs in the future. Since distributions from Roth IRA’s are tax-free for both you and the beneficiaries, they allow you and your heirs to have access to nontaxable income at any time.

2. No age requirements
Roth IRAs are not subject to the normal required minimum distributions at age 72 like other retirement accounts, so that gives taxpayers more flexibility in controlling their income for tax planning purposes down the road. Also, contributions to a Roth IRA are allowed at any age, so as long as a taxpayer has earned income, they can continue to fund a Roth IRA if they choose.

3. Protection from the Medicare surtax
Roth IRA distributions are not subject to the Medicare surtax and are not included in the calculation of the income threshold used to determine if the surtax applies. RMD’s from other taxable retirement accounts are includable and, therefore, can result in taxpayers getting hit with the surtax.

4. Leveraging the market
Converting an IRA while the value is lower due to a downturn in the market, can benefit you in two ways. Since the value is down, you would pay less tax than when the account value was higher. Then, if the account recovers after it is converted to the Roth IRA, that growth would never be taxed when the taxpayers or their heirs withdraw it.

5. Estate planning advantages
Money left in a Roth IRA to your children or other heirs is not taxable to those beneficiaries. This is a benefit to any heirs who may be in a higher tax bracket than the deceased was. The heirs also have the option of leaving that money in a Roth IRA until they have to withdraw it in 10 years, allowing it to accumulate even more tax-free growth in the account that should never be taxed.

6. Tax-free accumulation of wealth
Once funds are converted or contributed to a Roth IRA, there is no tax on any of the money or its earnings, such as dividends, capital gains, interest or distributions themselves, provided certain requirements are met.

While there are many reasons taxpayers should consider converting to Roth IRA’s in 2020, it may not be ideal for certain individual situations. Always consult with your wealth management and tax advisors before making changes to your financial plan. Yeo & Yeo Wealth Management advisors are here to help you analyze your personal circumstances so you can make the best decisions for your financial future. Contact us today.


This communication is for informational purposes only. It is not intended as investment advice or an offer or solicitation for the purchase or sale of any financial instrument. Indices are unmanaged, represent past performance, do not incur fees or expenses, and cannot be invested into directly. Past performance is no guarantee of future results.

Investment advisory services offered through HK Financial Services (HKFS), an Independent Registered Investment Adviser. Commission-based securities products are sold by ProEquities registered representatives and offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA and SIPC. HKFS, ProEquities, and Yeo & Yeo Wealth Management are unrelated entities. Neither HKFS nor ProEquities offer accounting, tax or legal services.

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