Helping You Look After

  1. Home
  2.  » 
  3. Estate Planning
  4.  » How can a Roth IRA conversion save you down the road?

How can a Roth IRA conversion save you down the road?

On Behalf of | Dec 27, 2021 | Estate Planning

As the new year dawns, you want to maximize your financial savings. If retirement looms, the actions you take now may pay off later.

The government institutes maximum contributions for retirement savings, especially those that defer taxes. However, there is a way you can put a little more away for retirement. Discover how a Roth IRA conversion may work for you and why you should consider meeting with your estate planning team now to capitalize.

What is tax-deferment?

Traditional 401(k) plans and IRAs save your money for retirement use. When you make deposits into these, the cash reduces your current yearly income and tax liability. Instead of paying taxes now, you pay when you withdraw it. Financial advisors recommend doing this as it reduces your tax liability now when you make more money.

What is a Roth IRA?

A Roth IRA is another tool for retirement savings. You may contribute as much money as you want to a Roth IRA. The catch is you pay taxes on it now, not later. This means your overall tax liability remains the same as if you did not deposit the money in a retirement account.

What is a conversion?

The government caps the amount of money you can contribute to tax-deferred accounts annually. However, there is no limit to how much money you can move from a traditional retirement account to a Roth IRA. As long as you roll the money from your standard account to the Roth, you may skip out on paying the extra taxes. If you withdraw retirement money early, though, it becomes subject to early withdrawal penalties and income taxes.

Setting yourself up to enjoy a fruitful retirement may take a few extra steps and dollars now. However, it may leave you with more cash in retirement when it matters most.