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Wye Financial Partners
Kathy Webster is a Chartered Financial Consultant ChFC® and LPL Financial Advisor at Wye Financial Partners, a division of Shore United Bank N.A. Her 33 years of experience in investment management, financial planning, and risk management solutions helps guide her clients every day. Webster explains the complex topic of Roth conversions.
What is a Roth conversion?
A Roth conversion involves taking pre-tax retirement dollars in an IRA or 401(k) and moving them to an after-tax Roth IRA. The downside is that taxes are due in the year of conversion, while the upside is that once the funds are in the Roth, withdrawals are tax-free (after age 59½ and 5 years). The potential growth after conversion is tax-free! Converting to a Roth can be a great way to benefit from historically low tax rates, create tax diversification, and minimize taxes for your heirs. The SECURE Act of 2019 eliminated the ability of non-spouse beneficiaries to stretch distributions from inherited IRAs over their life expectancy. Heirs are now required to deplete funds within 10 years, creating a possible tax bill. Funds inherited in a Roth still must be depleted in 10 years. However, distributions are tax-free.
Who should consider a Roth conversion?
If you have significant assets in pre-tax accounts, it can create a tax burden in retirement. Depending on your birth year, you must start taking Required Minimum Distributions (RMDs) at age 73 or 75. Large RMDs can lead to a higher tax bracket and increased Medicare premiums. Consider a Roth conversion after you retire and before you reach the RMD age. This allows for smaller amounts to be converted over several years, reducing the tax impact. Ideally, the taxes due on the conversion are paid from savings outside the retirement account, allowing as much tax-free growth as possible in the Roth.
How do I know if a Roth conversion is right for me?
Deciding to convert to a Roth requires a comprehensive look at your financial picture. Work with your financial advisor to review your retirement income and goals. Then contact a tax professional to help alleviate any tax consequences. Don’t leave your financial future to chance; reach out today!
Kathleen A. Webster, ChFC® | Wye Financial Partners; LPL Financial Advisor; 3035 Leonardtown Road | Waldorf, MD 20601; 800-309-8124 | www.wyefinancialpartners.com
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA and SIPC). Insurance products are offered through LPL or its licensed affiliates. Shore United Bank N.A. and Wye Financial Partners are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Wye Financial Partners and may also be employees of Shore United Bank N.A. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of Shore United Bank N.A. or Wye Financial Partners. Securities and insurance offered through LPL, or its affiliates are: Not Insured by FDIC or Any Other Government Agency | Not Bank Guaranteed | Not Bank Deposits or Obligations | May Lose Value.
