To schedule a call visit
When is the best time to do a Roth conversion? Today we're answering all of your Roth conversion questions!
We're an investing service that also helps you keep your dough straight. We'll manage your retirement investments while teaching you all about your money.
#retirement #retirementplanning #dohstr8
—Ready to subscribe—
For more information visit:
— Instagram @jazzWealth
— Twitter @jazzWealth
Business Affairs 📧Support@JazzWealth.com
Tags
financial planning, financial planning 2023, financial planning and analysis, retirement, retirement planning, retirement planning 101, retirement planning at 65, roth conversion, roth conversion ladder, roth conversion strategy, roth conversion taxes, roth conversion timing 2023, roth conversions, roth conversions 2023, Roth IRA, roth ira conversion, roth ira investments, roth ira vs traditional ira 2023, tax planning, tax planning 2023
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim
So in 2022 was January the best month for a Roth conversion?
Follow the math .
If you did a 100k conversion in January 2023( in the 20% tax bracket) you would have netted 80k after tax in the roth . Your 80k roth is invested in the sp500 and has earned 13% ytd so your roth would be worth $90.400.00 in September 2023.
VS
Not doing the conversion in January and the 100k earned the same 13% and has grown to 113k by September. You then do a 113k conversion from which you pay the 20% tax and net the same $90.400.00 in the roth.
As the math shows there is no benefit in timing the roth conversions .
How do you feel about Roth recharacterizations? This is the process that allows you to undo conversions that happen early in the year before filing your tax return. IE you could convert in January and then rewind the conversion before April 15th of the following year.
As long as you are willing to deal with the recharacterization process, it seems like that would tip the scales in favor of converting in January. That way, you can see if your converted assets were winners or losers by the end of the year, and then potentially convert more or roll some back in December.
Care to weigh in Eric?
Didn’t the ability to do this get nixed?
@eldogg4life Looks like you might be right. TIL, good to know
In the past, you could change your mind and recharacterize that Roth conversion back to a traditional IRA. However, the Tax Cuts and Jobs Act (TCJA) of 2017 banned recharacterizing the account balance of a Roth conversion back to a traditional IRA. Roth IRA conversions are now irrevocable.
The gain and the tax will offset each other regardless of the sequence.
Example
You convert 50k in january and after the 20% tax you will net 40k in the roth.
Lets say the market gains 10% for the year and in December you end the year with 44k in the roth.
VS
Your 50k in January gains 10% by December and has grown to 55k and then you convert at a 20% tax you will end up with the same 44k.
First example you pay 10k in taxes, second example you pay 11k in taxes. There’s most certainly a difference
You missed the point that regardless if the conversion is done pre crash or post crash your year end bottom line will not change
Like you pointed out there is a 1k difference in taxes but in spite of the difference the net bottom line remains the same for both examples .
Thank you but nothing new for me
Good info Eric thanks