Traditional IRA, Roth IRA, or Both is an important question astute investors are asking. We have explored Who Should Convert a Traditional IRA to a Roth IRA; here are some cases where investors should probably not convert.
Lower tax bracket after retirement
If an IRA owner expects to be in a lower tax bracket after retirement, it makes sense to pay the tax when withdrawn from the Traditional IRA. Also the tax deduction for Traditional IRA contributions is worth more in peak earning years.
Moving to another state in retirement
If an investor plans on moving in retirement, take into account the state tax of the current state versus the new state. Converting at a later time may make sense if moving from a high tax rate state to a low tax rate state.
Plan on gifting or donating IRA
Investors who plan on gifting or donating from an IRA may not want to convert to a Roth. The tax bill on a Traditional IRA is waived when the money goes to charity. When gifting an IRA, consider the tax rate of the beneficiary; they may be in a lower tax rate and therefore save taxes by not converting.
| AAAMP Blog by Ken Faulkenberry | |
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Ken Faulkenberry earned an MBA from the University of Southern California (USC) Marshall School of Business with an emphasis in investments. Ken has 25 years of investment experience and is dedicated to helping people with self-directed investment management through the Arbor Investment Planner. His asset allocation strategies have an outstanding performance record. |
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