Tom Meaglia, ChFC®

Chartered Financial Consultant


Investment Advisor Representative

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Meaglia Financial Consulting

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March/April 2019

Making a Roth IRA Conversion

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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.


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