Tax Rates: Do you think they will be
when you retire?
Did you pick A?
Congratulations! That puts you ahead of all those in a vegetative state or in first grade.
With government spending at unprecedented levels, and an ever increasing burden on entitlements such as Medicare and Social Security, something will have to give. Mathematics has a way of always having the last word, and no matter how much we believe that this party can go on forever, as is, it cannot.
When the Social Security tax was put in place the selling point was that these benefits would never be taxed! But guess what? Here we are in 2021 and it's possible to have as much as 85% of your benefit taxed! Ouch!
Seniors today are looking for smart tax-reduction strategies. What can you do to keep more of what you've earned?
Roth to the Rescue!
- You are effectively removing the government from being your business partner by converting from a traditional IRA to a Roth. Just like buying out a partner, you must buy off Uncle Sam. Do your conversions little by little, and pay your tax bill over time. The more time you have the better. But remember, any growth you have from now on will be tax-free. That's powerful.
- The sweet spot for doing Roth conversions is between the ages of 59 1/2 and 70 1/2. These are the years when early withdrawal penalties don't apply anymore, and Required Minimum Distributions haven't begun.
Setting up a conversion plan is a good idea!
It's your retirement, not Uncle Sam's
Last time I checked, our wonderful Uncle had no job. He didn't get up at 6 AM for 40 years to get to work. You did! Converting to a Roth IRA can increase your spendable income by 15-35% after retirement. Don't be overwhelmed by the task of doing it. Yard by yard, it's hard, but inch by inch, it's a cinch! Just take it a little at a time.
Should everyone convert to a Roth? No, but everyone should run the numbers. If you're older, or very close to retirement, it may not make financial sense, but then again it may well turn out to be one of the wisest decisions you ever made.