Year-End Move to Consider: Roth IRA Conversion

If you expect your taxes or Medicare premiums to be higher in the future, a Roth IRA conversion may make sense. The advantages of a Roth IRA conversion include tax-free withdrawals, and no distributions are required. Conversions are, however, taxable in the year they occur and once completed, they cannot be undone.

To have the conversion count for the 2019 tax year, the deadline for when the assets must leave the traditional IRA is December 31, 2019. It’s best to file your paperwork as early in December as is possible to ensure the conversion is started before the end of the year.

Because they are taxable, it’s often prudent to spread these conversions out over a period of years. A rule of thumb is to only roll over enough to put you up to, but not above, the thresholds for a higher tax bracket and higher Medicare premiums. (Medicare premiums are based on income from two years prior.) Estimating your 2019 taxes now can help you decide how much you can rollover without incurring a much higher-than-expected tax bill.

For more year-end tax tips, see: Smart Tax Moves to Make Before Year’s End.

For AAII’s complete 2019 Tax Guide, go to: The Individual Investor’s Guide to Personal Tax Planning 2019.

For more on Roth IRA conversion, see these articles:

Roth Versus Traditional IRA Decision Tree

Considerations for Roth IRA Contributions and Conversions

Retirement Planning Strategies Following the 2017 Tax Act

IRA Rollover Chart: Rules Regarding Rollovers and Conversions

Converting to a Roth IRA Can Minimize RMDs

Roth IRA Conversion Spreadsheet

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