Is Now the Right Time to Convert Your Traditional IRA to a Roth IRA?

BiggsKofford’s Garrett Adams discusses the advantages of IRA conversions:

Now might be the time to take advantage of a traditional to Roth IRA conversion. 2022 has been a financially challenging year for a lot of Americans. Whether you are a small business owner whose business has taken a hit, or the value of your retirement accounts have seen a drop over the last six months, it has been an unpredictable time for many.
While this sounds like all bad news, it can be advantageous for individuals looking to complete a Roth IRA conversion. When you convert your traditional IRA to a Roth IRA, you are going to pay ordinary income tax rates on the dollar value of the conversion. Once in a Roth IRA you will be able to take advantage of tax-free growth.
There are a few variables to consider when planning a Roth conversion, including your potential tax bracket in the year you execute the conversion. If you are expecting your income or tax bracket to be lower than usual, then a Roth conversion might be tax advantageous for you at that time.
On the other hand, if you are expecting a higher tax rate or increased amount of income for the year then it might not be the right time to complete a conversion. Another variable is ensuring that you have enough assets outside of the IRA to cover any potential tax liability that may result due to the conversion.
Overall, Roth IRAs are a great vehicle to help you take advantage of lower current tax brackets. It is never certain what future tax brackets might look like and a Roth IRA helps you reduce that potential tax burden.
Tax planning is very important when it comes to Roth conversions so that you can avoid any unexpected tax bills. Please reach out to us here at BiggsKofford if you have any questions or need some help determining if now is the right time to convert your traditional IRA to a Roth.

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