Beth Botti photo

Beth A. Botti, CFP®, ChFC, CLU, CDFA™

Financial Consultant

California Insurance License #0G24537

 

612 Wheelers Farms Road, Milford, CT 06460

 

Phone:  203-877-6556 Ext. 169

Fax:      203-301-0736

Email: beth.botti@equitable.com

March/April 2019

Making a Roth IRA Conversion

retirement roth time illustration design over a white background

If you’re nearing or in retirement and concerned that income tax rates will rise, you may want to convert a portion or all of your taxable retirement plan assets to a tax-free Roth IRA*. Here’s how it works.


Overcoming Obstacles
A major obstacle for many people considering a Roth conversion is their tax bill. The amount you convert from a tax-deferred retirement plan, such as a 401(k) or a traditional IRA, is considered a distribution and is added to your taxable income in the year you convert. This can create a larger tax bill than expected and potentially move you into higher income tax brackets.


If you’re nearing retirement but still working, the extra income can also cause you to become ineligible for current contributions to an existing Roth IRA. In 2018, income limits begin at $189,000 and phase out at $199,000 for taxpayers who are married and filing jointly or heads of households, with limits for single filers phasing out between $120,000 and $135,000.** But you do have alternatives if that’s the case.


Little by Little
Consider converting tax-deferred retirement account assets in portions in order to meet the income qualifications and keep your Roth IRA contribution eligibility. In this way, you spread out the conversion tax bill over time. If you were still working in 2018, you can contribute up to $5,500 annually to the Roth IRA, just as you can to a traditional IRA. If you’re at least age 50, you can add another $1,000 in catch-up contributions.


Qualified Roth IRA distributions are tax-free after age 59 1/2 if you have owned the IRA at least five years. Unlike traditional retirement accounts, the Roth IRA is not subject to what’s known as required minimum distributions (RMDs), which must begin at age 70 1/2. In fact, you needn’t take a distribution from a Roth in your lifetime. Your financial professional can tell you more.


* Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 1/2 or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
** https://www.irs.gov/retirement-plans/plan-participantemployee/amount-of-roth-ira-contributions-that-you-canmake-for-2018

GE-2258619d (10/18)(Exp. 10/20)


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Duly registered and licensed financial professionals offer securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA,SIPC (Equitable Financial Advisors in MI & TN), offer investment advisory products and services through Equitable Advisors, LLC, an SEC-registered investment advisor, and offer annuity and insurance products through Equitable Network, LLC (Equitable Network Insurance Agency of Utah, LLC in UT; Equitable Network of Puerto Rico, Inc.). Equal Opportunity Employer - M/F/D/V. Equitable Advisors and its associates and affiliates do not provide tax, accounting, or legal advice or services. Representatives may transact business, which includes offering products and services and/or responding to inquiries, only in state(s) in which they are properly registered and/or licensed. Your connection to this website does not necessarily indicate that the sender is able to transact business in your state. The information in this website is not investment or securities advice and does not constitute an offer. For more information about Equitable Advisors, LLC you may visit https://equitable.com/crs to review the firm's Relationship Summary for Retail Investors and General Conflicts of Interest Disclosure.

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