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Educational Resources

By Theresa Cagle Fry, Senior Vice President, Manager of IRAs, Retirement & Education Planning

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If you have been considering a Roth conversion, there are only a few weeks left in the year for the conversion to count as a taxable transaction for 2021. Unlike eligibility rules for Roth IRA contributions, anyone can choose to convert existing traditional IRA assets to a Roth IRA, but conversion comes with a cost – you pay income taxes on the amount you convert in the year you convert.

Why would you consider a Roth conversion? It can be advantageous if you:

  • Desire tax-free retirement income (after 5 years and age 59½)
  • Don’t want to take required minimum distributions during your lifetime
  • Desire tax-free income for your heirs after your death

One particular conversion strategy that could warrant a review before the end of 2021 is the back-door Roth conversion strategy. This involves making non-deductible (after-tax) contributions to a traditional IRA and then immediately converting to a Roth IRA. If you have been using the back-door Roth conversion strategy to fund your Roth IRA, this year-end may be the last year you can do it. Recent proposals in Congress would eliminate the back-door Roth strategy and the conversion of any after-tax contributions all together as of January 1, 2022.

Conversion is not right for everyone and you should review your individual circumstances with a tax professional prior to making a decision to convert because once you convert, you cannot undo it.

 

Benjamin F. Edwards & Co. does not provide legal or tax advice, therefore it is also important to consult with your legal and tax professionals for additional guidance tailored to your specific situation.

 

December 21, 2021 |