Should I consider a Roth Conversion?
At Incline Financial Planning, our approach to serving clients is guided by our unique "Service Calendar." This calendar outlines the areas of focus for each month, and for November, our client's financial well-being takes center stage with a particular emphasis on Roth Conversions and Cash Flow Management.
At Incline Financial Planning, we are enthusiastic proponents of Roth accounts. The core principle of Roth accounts is that you pay your taxes upfront when contributing to them, and subsequently, your investments grow tax-free, with the added benefit of tax-free distributions in the future. What we consider to be the most significant advantage of Roth accounts is the level of certainty they provide regarding your future tax rate, which is 0%. In contrast, traditional retirement accounts, like 401(k)s, are subject to taxes upon withdrawal, and predicting future tax rates can be a daunting task, as history has shown fluctuating and at times, very high personal income tax rates.
Our primary objective in November is to help our clients evaluate whether it's advantageous to convert funds from a retirement account with tax-deferred income into a Roth IRA. This process entails evaluating whether paying taxes on the converted amount today makes sense, thereby allowing those funds to grow over time without future tax consequences. The primary driver of this decision is how much are you willing to pay in taxes today to guarantee the tax-free growth and distribution of those funds for you and your heirs' future.
The strategy of Roth conversions can be intricate, with several moving parts. Drawing on our background in aviation, where complex environments demand precision and organization, we find it valuable to employ checklists and flowcharts. Specifically, we utilize two essential flowcharts to assist clients in making informed decisions. The first flowchart, titled "Should I consider a Roth Conversion?", guides clients in assessing the suitability of a conversion for their specific circumstances. The second flowchart, "Will My Roth IRA Conversion Be Penalty-Free?", helps clients understand potential penalties and restrictions associated with their conversion.
If you're interested in determining whether a Roth Conversion aligns with your financial goals and needs, we invite you to sign up for a complimentary financial plan. This personalized plan will consider your unique financial situation and help you make an informed decision about Roth conversions.
