Page 7 - Abacoa Community News - January '25

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Financial Focus ®

When Is A Good Time For the key benefits: a lower tax bill or convert more shares of these investments
Why is a Roth IRA desirable for some people? Here are
for what would have been the same tax bill.
Roth Conversion? If you have large amounts in a traditional IRA, the tax • Tax-free legacy for your heirs—When your heirs
bill on conversion can be significant. The key to potentially inherit your Roth IRA, they can withdraw the contributions
By Sally Sima Stahl, lowering this tax bill is timing. Generally speaking, the without paying taxes or penalties, and if the account has
Edward Jones lower your income in a given year, the more favorable it is been open for at least five years, they can also withdraw
In life, you often get for you to convert to a Roth IRA. So, for example, if you earnings tax-free.
second chances—and the have already retired, but have not started collecting RMDs, Finally, you could lower your tax bill in any given year
same is true with investing. your income may be down. by stretching out your Roth IRA conversions over several
To illustrate: You might not • Tax-free withdrawals—you put in after-tax dollars to years, rather than doing it all at once.
have been able to contribute a Roth IRA, so you can withdraw your contributions at any But even if you were aware of these advantages, you
to a Roth IRA during your time, free of taxes and penalties. And if you’ve had your might not have been able to invest in a Roth IRA for much
working years due to your account for at least five years and you’re at least 591⁄2, you of your life. For one thing, you might have earned too much
income level, but you may can also withdraw your earnings free of taxes. money— a Roth IRA, unlike a traditional IRA, has income
get that opportunity as you • No RMDs—With a traditional IRA, you’ll have to limits. Also, a Roth IRA has only been around since 1998,
near retirement or even when start taking withdrawals — called required minimum so, in the previous years, you were limited to a traditional
you are retired—through a Roth conversion. distributions, or RMDs — when you turn 73, or 75 if you IRA.
And you can do so by converting your traditional IRA were born in 1960 or later. But there’s no RMD requirement You’ll want to consult with your tax advisor before
to a Roth. While this sounds simple, there’s a major caveat: with a Roth IRA — you can essentially leave the money embarking on this conversion—but if it’s appropriate for your
taxes. You’ll be taxed on the amount in pre-tax dollars you intact as long as you like. situation, you could find that owning a Roth IRA can benefit
contributed to a traditional IRA and then converted to a Roth Timing also comes into play with the financial markets. you and your family for years to come.
IRA. (If you have both pre- and after-tax dollars in your When the market is going through a decline, and the value As you approach retirement, though, you might start
traditional IRA, the taxable amount is based on the percentage of your traditional IRA drops, you could convert the same thinking of just how much you’d like to benefit from a Roth
of pre-tax dollars.) number of shares of the underlying investments and receive IRA.
This article was written by Edward Jones for use by

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