In the midst of both economic and political uncertainty, a Roth IRA conversion should be at the top of your financial to-do list, according to one retirement expert.
“What everybody should be doing at a minimum is evaluating a Roth conversion, moving your money from accounts I like to say offer forever tax to never tax,” said Ed Slot, founder of IRAhelp.com, a retirement advisory website. “We have historic low tax rates and we don’t know how long those rates are going to stay as low as they are now.”
Slot noted that a high federal deficit likely will raise tax rates for millions of Americans sooner rather than later.
Since Roth IRA’s are post-tax retirement vehicles, Slot said, you’ll pay your tax today and therefore won’t have to worry about it when tax rates are higher.
“When rates go up, anything tax-free becomes immediately more valuable,” Slot said. “I’m not saying put everything in a Roth IRA, but probably a good plan is to do a series of smaller annual conversions over time.”
Those looking to convert their savings into a Roth IRA from a 401(k) may also want to take note of the limits. In 2020, a retirement investor can deposit up to $6,000 — or $7,000 if you’re 50 or older — by the end of the year.
If you’re among the workers who are affected by the pandemic and worried about how that will affect your retirement plans, you may want to consider converting and paying taxes now rather than later.
“There’s a silver lining for lots of people whose income may be down because of the uncertainties and what’s going on this year with businesses throwing off losses,” Slot said. “The foundation of all good tax planning sounds simple: It’s always to pay taxes at the lowest rates.”