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Many experts have told FOX Business now is a worthwhile time to consider opening a Roth IRA, or a Roth conversion.
“I don’t think there will ever be a better planning opportunity [to convert] than exists today,” Greg Hammer, of Hammer Financial Group, told FOX Business.
A Roth conversion involves taking all or parts of what you have in a traditional IRA and transferring it into a Roth IRA.
When contributing to a traditional IRA, money is taxed upon withdrawal. A Roth taxes contributions and allows for tax-free withdrawals.
That’s why moving money into a Roth can be one of “the most strategic things you can do,” according to Justin Halverson, a partner and lead adviser at financial planning firm Great Waters Financial, since experts believe tax rates may never be this low again.
The Tax Cuts and Jobs Act lowered income tax rates for most people – with seven brackets that range from 10 percent to 37 percent. While the Trump administration has said it is considering another round of tax cuts, many of the 2020 Democratic candidates have called for tax expansions and increases.
And, as the federal budget deficit is expected to reach $1 trillion this year – and average $1.3 trillion between 2021 and 2030, according to the Congressional Budget Office – many think tax rates will have to rise from current levels.
Unlike traditional IRA accounts, Roth IRAs are also not subject to required minimum distributions until the death of the owner.
It is, however, important to remember that Roth conversions are permanent, meaning you cannot put the money back into a traditional IRA. Therefore it’s best to use money that you won’t need for a while, Hammer said.
The deadline for Roth conversions is typically the end of the calendar year. The deadline for making IRA contributions during any given tax year is April 15.
Total contributions to your traditional and Roth IRA accounts cannot exceed $6,000 for those under the age of 50 this year and $7,000 for those 50 and older.
As previously reported by FOX Business, only 65 percent of workers nearing retirement have any wealth accumulated in an IRA, 401(k) or other retirement account. It is projected that 40 percent of middle-class workers between the ages of 40 and 50 will fall into poverty in retirement.