Is a Roth Conversion Right for You This Year?
As tax laws continue to shift and the financial world evolves, many people are taking a fresh look at how their retirement savings are structured. One strategy that has been gaining attention is the Roth conversion. It offers the potential for long-term tax advantages and more flexibility in retirement, which is why now may be an especially good time to understand how it works and whether it fits into your financial plan.
A Roth conversion is the process of moving funds from a pre-tax retirement account, such as a traditional IRA or 401(k), into a Roth IRA. When you complete a conversion, the amount moved becomes taxable income for that year. Once the funds are inside the Roth IRA, however, they can grow tax-free. Qualifying withdrawals in retirement are also tax-free. For many individuals, paying taxes today in exchange for tax-free income later can create real long-term value.
This strategy is particularly relevant given recent policy developments. Many provisions from the 2017 Tax Cuts and Jobs Act were made permanent under this summer’s One Big Beautiful Bill Act (OBBBA). Still, there is ongoing uncertainty about where tax rates may go in the future. With rising government debt and shifting national priorities, today’s relatively low tax brackets may not be permanent. A Roth conversion gives you the chance to take advantage of current rates before possible increases in the years ahead.
Roth conversions also offer benefits that many people appreciate later in life. Roth IRAs do not require minimum distributions, which means you have more control over the timing of your retirement income. This flexibility can help you manage taxable income in specific years and shape your retirement cash flow in a more strategic way. By incorporating both pre-tax and Roth accounts into your financial plan, you can create a more balanced approach to future income planning.
There are estate planning advantages as well. Roth assets can be passed to beneficiaries without creating income tax for them. While most non-spouse beneficiaries must withdraw the full balance within ten years, those withdrawals will not increase their taxable income. For heirs who may be in higher tax brackets, this can provide meaningful savings.
New tax rules beginning in 2025 may also make Roth conversions more attractive for some households. Higher standard deductions and updated income thresholds, combined with deductions related to age, dependents, or state and local taxes, may help soften the tax impact of a conversion.
Whether you are approaching retirement, early in your career, or navigating a year with lower taxable income, it may be worth exploring whether a Roth conversion supports your long-term goals. Every situation is unique, and we are here to help you understand what makes sense for you.
If you would like to take a closer look at how a Roth conversion could fit into your financial plan, we invite you to schedule a complimentary meeting with our team. There is no cost and no obligation. It is simply an opportunity to ask questions, explore your options, and receive guidance that supports your financial future.
