Roth IRA Conversion Benefits: Timing, Taxes & Long-Term Impact

Preston Rosamond |

Looking for ways to reduce your tax burden in retirement?

 

One strategy worth considering is a Roth IRA conversion. By moving funds from a traditional IRA or 401(k) into a Roth IRA and paying taxes now, you can position yourself to enjoy tax-free retirement income later.

 

Still, it’s important to understand whether the Roth IRA conversion benefits align with your overall retirement planning goals. At The Rosamond Financial Group, we provide the clarity and guidance you need to make informed financial decisions tailored to your unique situation.

 

In this article, we compare traditional vs. Roth IRAs, walk through the conversion process, and help determine if this strategy can strengthen your long-term financial plan.

Traditional vs. Roth IRA

A traditional IRA provides a tax benefit on the front end, meaning qualifying individuals enjoy a benefit sooner rather than later. Contributions are made with pre-tax earned income. At tax time, the contributions made over the last year are fully or partially tax-deductible based on income and whether you or your spouse are participating in a work-sponsored retirement plan. 

 

Here’s a breakdown based on tax filing status:

 

  • Single: The tax deduction phases out for those who are covered by a workplace retirement plan and have an adjusted gross income ranging from $79,000 to $89,000.
  • Single: The tax deduction is available for any amount of AGI if the taxpayer is single and not covered by a workplace retirement plan.
  • Married: The tax deduction phases from $126,000 to $146,000 for the spouse making traditional IRA contributions with a work retirement plan.

 

The 2025 max annual contributions into a traditional IRA is $7,000 (or $8,000 for those over 50). A traditional IRA also comes with a required minimum distribution (RMD), beginning April 1 after your 73rd birthday. (Note: Under the SECURE 2.0 Act, the RMD age will rise to 75 in 2033.) Ignoring the RMD will land you a hefty penalty fee.

 

Conversely, a Roth IRA provides a future tax benefit, once you’re ready to withdraw the funds. Roth IRA contributions are made with after-tax money you’ve earned through work. When it’s time to cash in, you will not be assessed any further taxes on the initial investment or the gains. 

 

Unlike a traditional IRA, there are no RMDs associated with a Roth IRA. You may also withdraw contributions at any time, but be careful to not withdraw any of the gains before you’re 59½ years of age to avoid a 10% penalty fee.

Roth IRA Conversion and Taxes

A Roth IRA conversion is a tax strategy which normally involves converting tax-deferred savings (IRA, 401(k)) into a tax-free retirement account. In the case of a Roth IRA conversion, you’re ultimately deciding the future tax-free benefits of a Roth IRA are superior to paying the taxes now on pre-tax retirement money.

 

But how is it determined? A simplistic method may be to first consider your present tax bracket and whether you remain in this bracket (or ascend to a higher bracket) with the conversion. Then consider your potential bracket at and during retirement. If the current bracket is significantly lower than the future one, a conversion may make sense. If not or the brackets are equal, a conversion may not be advisable.

Explore the Benefits of a Roth IRA Conversion 

If you currently have a traditional IRA but expect to be in a higher tax bracket when you begin withdrawals, exploring Roth IRA conversion benefits could be a smart move. A conversion can influence multiple areas of your financial strategy, including taxes, retirement planning, investment management, and even estate planning. This is why having experienced financial professionals by your side is so valuable. 

 

At The Rosamond Financial Group, we can help you evaluate whether a Roth IRA conversion aligns with your long-term goals and guide you through each step of the process. Start today by scheduling your free consultation at 830-798-9400 or email solutions@rosamondfinancialgroup.com.  

About Preston

Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with over two decades of industry experience. He provides comprehensive wealth management and financial services to successful business owners, corporate executives, and affluent retirees who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing solutions@rosamondfinancialgroup.com or schedule a call on his online calendar.