Hey ,
As we approach the end of the year, some of you might be thinking about something called a "Roth IRA conversion" to save on taxes in the future. This tax strategy transfers your pre-tax IRA funds to a Roth IRA, which kick-starts future tax-free growth.
But before you make any decisions, you should understand a few essential things.
1. Short-Term Taxes
When you convert to a Roth IRA, you might have to
pay a big tax bill upfront.
This means you'll need to have enough money set aside to
cover those taxes. If you don't plan for it, you could get into trouble with the IRS.
Plus, it might affect other things like your
Medicare costs or other tax breaks.
2. Think About Your Taxes Now and Later
Converting to a Roth IRA is like a special tax move. You need to think about the taxes you pay now and what you might pay in the future.
It's usually better to do this when you're not earning a lot because the tax bill will be smaller. But if you wait too long, the tax rules might change.
3. Timing Matters
When you move your money to a Roth IRA, it
needs time to grow tax-free. So, the longer you wait to take it out, the better.
You can talk to a financial advisor to figure out
when it makes sense for you to do this. Also, there's a rule that says you have to wait five years before you can take the money out without penalties.
So, did this feel like a lot? Or, did it remind you how badly you need to plan your taxes?
I bet it reminds you to
plan your taxes, starting now – of course, with the help of a tax pro. Let me be that pro who plans your taxes throughout the years or years.
It will help you save even more from deductions and tax credits, too. Call my office now at 202-618-1297 to book a quick tax chat with me, or click the link below.
