- November 12, 2023
- Posted by: legaleseblogger
- Category: Related News
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Financial Advisor Recommendation: Rollover Traditional IRA into Roth IRA for Future Tax Benefits
The Importance of Obtaining Professional Financial Advice: Exploring the Benefits and Options for Retirement Accounts
As a resident of California, a 35-year-old male with retirement accounts and brokerage investments, I have recently been advised by my financial advisor at a reputable financial services company to consider rolling over my traditional IRA into a Roth IRA. This recommendation is based on the projection of an increase in federal tax brackets over the coming decades, with the Roth IRA being seen as the more advantageous option for protection and leverage in the future.
While I understand the rationale behind this suggestion, I find myself somewhat hesitant about completely closing out my traditional IRA and forfeiting the flexibility of having both accounts. My contributions have been primarily directed toward the Roth IRA in recent years, as I have not exceeded the contribution limits. Given that I have a pension, and not a 401k, limiting my annual contributions to 6k, which I believe consists of pre-tax contributions made by my employer as a union member in my specific industry.
Looking ahead, I envision a future point in my career where my income potential may surpass the limits for contributing to a Roth IRA. Thus, retaining my traditional IRA for additional contributions appears to be a sensible option. However, uncertainties exist regarding the timing of such a scenario, particularly in light of the fluctuating nature of my income, which has experienced both significant increases close to the Roth IRA limit and marked decreases due to the impact of COVID-19 and industry strikes.
In the interest of making informed decisions about my retirement investments, I would appreciate the opportunity to delve deeper into my advisor’s insights and explore potential alternative strategies for structuring my financial portfolio. Additionally, as a resident of California with brokerage investments held elsewhere, I recognize the necessity of considering my unique circumstances and seeking professional guidance to ensure optimal management of my assets.
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****** just grabbed a
ItÔÇÖs a foolÔÇÖs game to try to guess what future tax laws might be.
Sure, tax brackets might increase. They might stay the same. They might change it so that any IRAs arenÔÇÖt taxable at all, or are taxable at a much lower amount. Future tax laws literally could be anything.
If someone is making recommendations based on a set of tax laws that donÔÇÖt even currently exist, their whole premise is flawed.
Make your decisions based on current tax law. Doing anything else is just a bad guess.
My advisor has a similar perspective, but worded a bit differently. First of all, I do have a good mix of pre and post tax accounts, so I wouldnt go 100% Roth, but what my advisor says is that its better to pay the taxes now because we know what they are, than to gamble on what they might be in 30 years. Sure, they could be lower but who knows. I live the idea of paying the tax now and letting the money grow for 30 years without having to worry about how much Ill owe then. Theres a level of what feels right to you in all this. But still, I wouldnt eliminate all pretax accounts.
>Ideally, I would reach a point in my career excessive income generation would prevent me from contributing to my Roth. That is why I believe keeping my traditional IRA for other contributions makes sense.
That’s exactly why it *doesn’t* make sense to have tIRA balances; you’ll be prevented from backdoor Roth contributions.
I don’t think your advisor’s reasoning is sound, tax rates have been going down for your, and likely *his*, entire life. But the end result is definitely something you should consider.
How much is in the tIRA and what’s your current tax bracket?
You may find these links helpful:
– [General Information on Rollovers](/r/personalfinance/wiki/retirementaccounts/rollovers)
– [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
– [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement)
– [“How to handle $”](/r/personalfinance/wiki/commontopics)
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[deleted]
If it did make sense to convert all of part now (based on your marginal tax rate), that doesnÔÇÖt stop you from using a traditional IRA in future years. In fact, at certain incomes, there is a strategy that requires the traditional IRAs to be empty.
If you are in the 12% tax bracket, convert the traditional to a Roth IRA.
If you are in the 22% tax bracket, convert the traditional to a Roth IRA.
If you are in the 24, it is a maybe. I can see both sides of the argument.
In the higher brackets you want to avoid taxes, not pay 32% or higher.
If you are in the 32% or 35% bracket, why would you want to pay that much in tax when you could defer the money, make 32% or 35% guaranteed return.
If you are in the 37% tax bracket, your advisor is nuts.