Roth IRA accounts provide the benefits of tax-free accumulation and, once you reach retirement age, tax-free distributions. This is the reason why so many taxpayers are converting their traditional IRA account to a Roth IRA. However, to do so, you must generally pay tax on the on the converted amount. After making a conversion, your circumstances may change, and you may find yourself wishing you had not made the conversion. In the past, you could change your mind later and undo the conversion. But that option is no longer available under tax reform. So, be careful: once a conversion is made, there is no going back.
The tax provision that allows taxpayers to convert a Traditional IRA to a Roth IRA is a great tax-planning tool when used properly, and timing is everything.
To make a conversion, you must pay income taxes on the amount of the traditional IRA converted to a Roth IRA. So why would one want to do that? Well, the answer is that Roth IRAs enjoy tax-free accumulation and distributions, whereas the earnings in and contributions made to a traditional IRA are fully taxable whenever they are withdrawn. (An exception is if the contributions to the traditional IRA were treated as non-deductible. In that case, each distribution is nontaxable or partly nontaxable if only some of the contributions had not been deducted.)
So, you might consider converting during a year in which your income is abnormally low or a year in which your Read More
According to the Merriam-Webster dictionary, a nest egg is a natural or artificial egg left in a nest especially to induce a hen to continue to lay there. Apparently this nest egg could be expanded to include teenagers still in bed at noon…but I digress! Well, we all know that a nest egg is a fund of money accumulated as a reserve and for most of us, that means a retirement account.
One general trend I saw this tax season was, as more and more median incomes rose shifting people into the next higher tax bracket, more often than not, retirement savings schemes such as the 401(k), the Individual Retirement Account (aka IRA) seemed to be the salaried man’s (or woman’s) major or only avenue to tax savings. This is what I tell my clients, if the government gives you an opportunity to avoid income taxes, you should grab Read More