Financial Consultant Steve Sexton Shares the Perks and Pitfalls of a ROTH
You may end up paying tax on a higher conversion. According to Sexton, adding income during a ROTH conversion could push you into a higher tax bracket in the short-term.
You may receive a Medicare surcharge. “If you are receiving Medicare and your income goes above $176,000, you might be hit with a Medicare surcharge,” explains Sexton. “You could wind up paying tax on 85% of your Social Security Income at a higher tax bracket.”
Know the five-year rule. The deposit into a ROTH IRA has already been taxed, but the income that deposit generates is taxable for 5 year after the deposit.
You must be 59 1/2 years old in order to take out money tax-free. “If you are younger than 59.5 years old, you’ll be faced with a 10% surcharge should you want to withdraw any funds,” says Sexton.
Go for the “sweet spot.” Sexton reveals most financial consultants agree that individuals between the age of retirement and the time you must take your required minimum distribution (72 years old) seems to be the “sweet spot” for embarking on a ROTH IRA conversion.
Above all, Sexton recommends speaking with a trusted CPA to truly understand the taxable impact of a ROTH conversion. “There are many advantages to converting your IRA to a ROTH. However, there are also a few key pitfalls and trapdoors, so it is essential you work with a financial professional who can help navigate these complicated waters,” advises Sexton.
For more information on Sexton Advisory Group, please visit https://www.sextonadvisorygroup.com/
Published at Sat, 20 Feb 2021 08:00:00 +0000