To Roth or Not to Roth?

Tuesday, May 28, 2024

That is the question more and more people are asking. Like most things in life, the answer depends on the situation. However, the benefits of the Roth IRA are some of the best the government has donned on the American saver. Let’s first take a look at historical tax rates. Fun fact (not funny): Did you know the highest marginal federal tax rate for the highest income earners was 94% in 1944? Currently, the top marginal rate is 37% according to taxpolicycenter.org. Many experts believe tax rates are set to go up in the future given the amount of national debt accumulating, lack of funding for programs like Social Security, etc. One of two things must happen: increase revenue (raise taxes) or cut spending, and I’m pretty certain one of those is more likely than the other (I’ll let you come to your own conclusion). In addition, the Tax Cuts and Jobs Act reduced tax rates for many people and those rates are set to expire at the end of 2025.

Here’s the question: What are you doing today to help yourself later as it pertains to taxes in retirement? A Roth conversion of your traditional IRA may be the answer. But like usual, consult your tax advisor. A Roth conversion means you pay the taxes in the year you convert those assets, which may not seem like a good idea. However, the growth from there forward accumulates tax-deferred and then in many cases, comes out of the account tax-free in retirement. Another benefit would be passing those now Roth IRA assets to your beneficiary’s tax-free as well, which could be a great estate planning tool. Like any decision you make in life, financial or otherwise, you need the right amount of information to make the best decision. Talk to financial professional who can walk you through this process.

Advisory services offered through Alspaugh Wealth Management. Insurance services offered through Innovative Financial Consultants, an affiliated company.