roth conversion

THREE LITTLE WORDS YOU MAY NEED TO KNOW: Required. Minimum. Distribution.  

If you are of a certain age and have certain retirement accounts, you probably need to know about the annually required withdrawals from those accounts. The IRS calls them “Required Minimum Distributions”—RMDs.

One special note: Clients, many of you are already treating your retirement account like an orchard, taking out the fruit crop each year to live on. The RMD is not an “extra” amount on top of the crop: it is just a minimum. If you are already taking out 5% in monthly payments to fund your retirement, you don’t need to worry about what happens at age 73.

We’ll talk about the details here, then how it works out in practice.

People born in or before 1950 with any form of retirement account (other than Roth IRA) have already begun doing this RMD process each year (or should have). People born in 1951 or later will have to begin by the year they turn 73.

Basically, the RMD needs to be calculated for each retirement account you have (except Roth IRAs). You must take out the total amount required by December 31, and you will receive a 1099-R showing taxable income.

Clients, you know we pay attention to this and strive to keep you informed about what needs to be done. But there’s one thing to be careful of: take this as an opportunity to check whether there is some account somewhere that we don’t know about, like a 401(k) from a former employer, an odd IRA balance somewhere, 457 or 403(b) plans, and so on. It happens, but it would be a pain to get yourself into some trouble over an account that’s been out of sight, out of mind.

Some people may choose to use the onset of RMDs as a time to consolidate all of their retirement funds into a single rollover IRA, to make this process simpler going forward.

One of the advantages of Roth IRAs is that they have no RMD requirement. As a matter of good planning, it may make sense to convert partial IRA balances to Roth, pay tax when you choose, and whittle down that balance that is subject to RMDs in traditional retirement accounts.

There are lots of ways to handle things! If you’d like to talk about it, we’re here for it. Email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

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Spicing Things Up: Catsup, Ketchup, or Catch-Up?
graphic shows a piggy bank looking on curiously at a bottle of ketchup

One of these is not about tomato-based condiments.

In the world of IRAs—Individual Retirement Accounts—we consider the beginning of January through tax filing day “catch-up season.” Whether Roth or traditional, if we are eligible to make contributions, then we can catch up on our 2024 contributions even though 2024 is over.

Those just learning about the power of Roth IRAs can use this season to make two years’ worth of contributions at once. The limit on contributions is $7,000 for 2024 plus $7,000 for 2025. Another note to know: for people who turn 50 by year-end, there is an extra $1,000 per year that can go in—a “catch-up” contribution.

Consider even just the standard contribution limits. Imagine if you had $14,000 in a regular account (in which you pay tax on earnings) and were eligible to contribute to a Roth IRA for 2024 and 2025. If you won’t be spending that money in the next few years, the question comes down to whether you would like to never pay tax on earnings on that money, ever again, for the rest of your life.

If that value were to double over the years and double again, as sometimes happens with long-term investments, there might be $56,000 available later with zero tax. And if you didn’t spend it, your beneficiaries would receive it, free of income tax.

No guarantees, of course: the markets go up and down.

The way Roth IRAs work, after five years your contributions can be withdrawn without tax. At the later of five years or age 59½, the earnings may be withdrawn without tax. There is a maximum earnings limit on Roth contribution eligibility; we’d be happy to visit with you about your eligibility. Simply email us or call if you have an interest in learning more.

There is a whole world of other lifetime tax reduction strategies related to Roth conversions; we’ll talk about those another time.

For now, happy catch-up season, one and all!

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

This information is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. We recommend you discuss your specific situation with a qualified tax or legal advisor.

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Play the audio version of this post below:

Spicing Things Up: Catsup, Ketchup, or Catch-Up? – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Catsup, Ketchup, or Catch-Up?
graphic shows a piggy bank looking on curiously at a bottle of ketchup

One of these is not about tomato-based condiments.

In the world of IRAs—Individual Retirement Accounts—we consider the beginning of January through tax filing day “catch-up season.” Whether Roth or traditional, if we are eligible to make contributions, then we can catch up on our 2023 contributions even though 2023 is over.

Those just learning about the power of Roth IRAs can use this season to make two years’ worth of contributions at once. The limit on contributions is $6,500 for 2023 plus $7,000 for 2024.

Another note to know: for people who turn 50 by year-end, there is an extra $1,000 per year that can go in—a “catch-up” contribution.

Imagine if you had $13,500 in a regular account (in which you pay tax on earnings) and were eligible to contribute to a Roth IRA for 2023 and 2024. If you won’t be spending that money in the next few years, the question comes down to whether you would like to never pay tax on earnings on that money, ever again, for the rest of your life.

If that value were to double over the years and double again, as sometimes happens with long-term investments, there might be $54,000 available later with zero tax. And if you didn’t spend it, your beneficiaries would receive it, free of income tax.

No guarantees, of course: the markets go up and down.

The way Roth IRAs work, after five years your contributions can be withdrawn without tax. At the later of five years or age 59½, the earnings may be withdrawn without tax. There is a maximum earnings limit on Roth contribution eligibility; we’d be happy to visit with you about your eligibility. Simply email us or call if you have an interest in learning more.

There is a whole world of other lifetime tax reduction strategies related to Roth conversions; we’ll talk about those another time.

For now, happy catch-up season, one and all!

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

This information is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. We recommend you discuss your specific situation with a qualified tax or legal advisor.

Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

Catsup, Ketchup, or Catch-Up? – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.

Three Words You May Need to Know: Required. Minimum. Distribution. 

If you are of a certain age and have certain retirement accounts, you probably need to know about the annually required withdrawals from those accounts. The IRS calls them “Required Minimum Distributions”—RMDs.

One special note: Clients, many of you are already treating your retirement account like an orchard, taking out the fruit crop each year to live on. The RMD is not an “extra” amount on top of the crop: it is just a minimum. If you are already taking out 5% in monthly payments to fund your retirement, you don’t need to worry about what happens at age 73.

We’ll talk about the details here, then how it works out in practice.

People born in or before 1950 with any form of retirement account (other than Roth IRA) have already begun doing this RMD process each year (or should have). People born in 1951 or later will have to begin by the year they turn 73.

The actual amount required is a function of age and the prior year-end balance. For example, a 73-year-old has to take out a little less than 3.8%. In round numbers, this would be $3,800 per $100,000 in the account. But that fraction goes up a little every year: 80-year-olds are closer to 5%, 90-year-olds have to take out more than 8%.

Basically, the RMD needs to be calculated for each retirement account you have (except Roth IRAs). You must take out the total amount required by December 31, and you will receive a 1099-R showing taxable income.

Clients, you know we pay attention to this and strive to keep you informed about what needs to be done. But there’s one thing to be careful of: take this as an opportunity to check whether there is some account somewhere that we don’t know about, like a 401(k) from a former employer, an odd IRA balance somewhere, 457 or 403(b) plans, and so on. It happens, but it would be a pain to get yourself into some trouble over an account that’s been out of sight, out of mind.

Some people may choose to use the onset of RMDs as a time to consolidate all of their retirement funds into a single rollover IRA, to make this process simpler going forward.

One of the advantages of Roth IRAs is that they have no RMD requirement. As a matter of good planning, it may make sense to convert partial IRA balances to Roth, pay tax when you choose, and whittle down that balance that is subject to RMDs in traditional retirement accounts.

There are lots of ways to handle things! If you’d like to talk about it, we’re here for it. Email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

Three Words You May Need to Know: Required. Minimum. Distribution. – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.

It Goes Up and Down: Some Questions for a Moment Like This
graphic shows "up" and "down" on a chalkboard with checkmarks next to them

The history of the stock market can be summed up pretty well: it goes up and down. As for the future, we cannot know for certain whether it will continue to go up and down—or on what schedule—but it seems reasonable to take the liberty of guessing this whole “up and down” thing may persist.

When things are down 20% from their most recent peak, and we recognize it goes up and down, this may well be as good a time as any to invest.

We might have a recession, but current lower prices already reflect a lower outlook. You could say sentiment is already in the mix, already baked into prices. And anyway, where there’s a recession, there’s surely a recovery to follow.

Do we know the timing? Nope. But we never do. (That’s where the whole up-down thing comes back into focus.)

There is much we do not know, but we have faith that perhaps our guesses may be good enough to get by. We believe, for example, that in the future there is money to be made by companies that meet our needs. We have a hunch we will continue to eat, shop, entertain ourselves, wear clothes, go places, communicate, create, and do all those other things humans tend to do. And we have an opportunity now to invest in companies that could provide those things then.

Clients, some things to consider at such a moment as this:

  • Is there room to start or add to a Roth or IRA?
  • Should some funds in a stable-but-stagnant form perhaps be invested for long-term growth?
  • Would a Roth conversion make sense given these lower prices?

It goes up and down. And when we invest for the long run, we commit to the ups and the downs both. One never knows when the trend will change, just that it very well may.

If it’s time for you to add to long-term holdings, please email us or call the shop—anytime.

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Play the audio version of this post below:

It Goes Up and Down: Some Questions for a Moment Like This – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Happy Roth Year!

We’ve got Roth IRAs on the brain. Why? How would you like to never, ever pay income tax on investment gains and dividends and interest on some fraction of your money? Oh—and your beneficiaries never would either. Well?

That’s the magic of the Roth IRA, properly used.

Every single person may convert existing IRA or rollover balances into a Roth IRA, by paying income tax on the converted amount. Many believe income taxes will rise in the years ahead, above the scheduled increases in the current law.

Anyone may do a conversion of the amount they choose from existing IRA or rollover accounts, although other factors determine whether you are also eligible to contribute as much as $7,000 for 2021.

Here are some reasons that people are using this technique:

It allows folks to take advantage of the perhaps low tax brackets they are in currently: why leave the 12% or 22% or 24% bracket partly unused if you believe your tax rates will be higher in the future?

It provides a bucket for your most dynamic investments, where gains will never be taxed.

It offers balance to your retirement assets, between traditional “pay tax later” accounts and Roth “pay tax now” accounts. This reduces future RMDs (required minimum distributions) and increases your cash flow flexibility.

Like so much of life, we cannot know the future, so we simply do the best with what we do know. “A little of this, a little of that” may be a prudent way to deal with uncertainty. Future tax rates, future investment results, and your future cash flow needs are all unknown. So it might make sense to take a middle-of-the road approach—and build more flexibility into your retirement situation.

Roth conversions go by calendar year, so if you would like to talk about your options, please call or email us in the next few weeks.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

Happy Roth Year! – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.