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Roth Conversion Reminder

hurryAs the end of the year approaches, this is your reminder to let us know of any year-end tax planning changes in your portfolio you may need to make, such as doing a Roth conversion.

A Roth Conversion often makes sense for retirees in the 15% tax bracket (or lower), or self-employed individuals who may experience lower earnings or even a loss in 2014. The strategy is to “top up” the income tax bracket, using all of the potentially unused portion.

We recommend you check with your accountant to see if a Roth conversion makes sense for you.

Please let us know no later than tomorrow, December 18th, if you want to do a Roth conversion.

Here are some additional points to keep in mind when converting a portion of a traditional IRA to a Roth IRA.

  • The amount of the conversion counts as ordinary income on your tax return.
  • To get the most benefit from the conversion, it is important to pay the income tax from a separate source instead of having it withheld from the conversion funds.
  • The benefit of a Roth conversion is that the money in the Roth will not be taxed when it is distributed.
  • Roth IRAs do not have annual required minimum distributions like traditional IRAs do.
  • For these reasons, Roth IRAs are nicely suited for passing on to children or grandchildren.
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