The motivating factor for this second look is the likelihood that under the new Democratic regime in Washington, the attractive tax rates introduced under the previous administration will likely drift higher, but not until next year due to COVID.
With a little math and some reasonable assumptions, I think it might be possible to conduct some kind of tax arbitrage where a Roth switch in 2021 would make investors, especially those granted deferment from the RMD, pay taxes in the EU In the current low interest rate environment, higher tax rates can be expected for themselves or their beneficiaries in the future.
It’s hard to overstate how attractive current tax laws are to families in the $ 80,000 to $ 125,000 income range, which is a very common range for many retirees. By using a Roth IRA conversion to fill those attractively low tax brackets and essentially moving money to a Roth IRA tax haven, potentially less attractive tax rates for retirees and their final beneficiaries can be avoided in the future.
This information is not a substitute for specific individual tax advice. We encourage you to discuss your specific tax issues with a qualified tax advisor. Traditional IRA account holders need to give some thought before a Roth IRA conversion. Above all, this includes income tax consequences for the converted amount in the year of conversion, redemption restrictions from a Roth IRA and income restrictions for future contributions to a Roth IRA. If you need to make a Minimum Required Distribution (RMD) in the year you convert, you must do so prior to converting to a Roth IRA. Marc Ruiz is an asset advisor and partner of Oak Partners and a registered agent of LPL Financial. Contact Marc at email@example.com. Securities offered through LPL Financial, member FINRA / SIPC.
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