When should you convert to a Roth IRA? This is among the most frequently asked questions regarding retirement planning. The answer is, whenever you choose. There is no rule that requires you to wait until you are retiring. Traditional, SEP, and Simple IRAs as well as employer sponsored plans can be converted at any time depending on plan rules.
In the case of 401ks. Most people wait to convert their plan to a Roth when leaving a job. Yet if the employer offers a Roth IRA option, or the 401k allows for an in-service rollover, you can convert to a Roth while still employed. There are upsides and downsides to converting while on the job. The upsides are you’ll be diversifying your portfolio, and you’ll have more control over your assets. Topping the downsides list is the tax bill you’ll pay.
Timing the conversion is essential to ensuring you don’t end up in a higher tax bracket. Contact Allow Wealth and we’ll explain why your income level and the amount of funds to be converted will help determine the best time to rollover your existing plan into a Roth IRA.
There are many reasons the Roth IRA is popular with investors. You’ve already paid taxes on your contributions, so you won’t be taxed when you make withdrawals. Your earnings will also be tax free. Speaking of, to withdraw earnings, you must wait until age 59 ½ to avoid taxes and penalties. Other than that, and the contribution limits, there really aren’t many downsides. If you have questions about investing, call us! 800-689-3935