Leading financial advisor based in Jupiter, FL, Cary Stamp, CFP®, shares the Roth IRA conversion strategy that many people are unaware of, but can make a huge difference on taxable income in retirement.
This is especially important if you’re within a few years of retirement or if you’re in that gap between the time that you’ve retired and the time that you plan to turn on your Social Security payments to generate income.
Hi, I’m Cary Stamp, and this is a Principled Wealth Moment. I’m going to share a Roth IRA conversion strategy that a lot of people probably don’t know about, but it can make a lot of sense, especially if you’re within a few years of retirement or if you’re in that gap between the time that you’ve retired and the time that you’re going to turn on your Social Security payments to generate some more income.
Let’s say you have an IRA and in this IRA, you have a balance of half a million dollars. Don’t let the numbers fool you, not everybody does, some people have more, but if you have less, just take a zero off. But let’s say you have a half million dollar IRA balance and you are five years from retirement and you want to do something in these five years so that you can take advantage of the fact that you don’t have to take a required minimum distribution from your IRA and that maybe you’re going to delay your Social Security. So you know that your income tax bracket is really going to be fairly low during that period of time.
One thing you can consider doing is a strategy of taking a portion or all of this half million dollars and converting it to a Roth IRA. When you make this conversion, you will pay the tax on money that you’re converting in that year. But if you’re in a low tax bracket, it could be a very small amount of tax. So you don’t have to convert all of the $500,000 at once, you could do $50,000 a year over five years or over 10 years or over whatever period of time you would like, you could do $100,000 a year over five years, and you could even get started and see how this impacts or affects your tax rate and decide if you want to ramp it up or ramp it down. You’re not locked into making these conversions over this period of time. You get to choose every single year, what’s going to work best for you.
This is a Roth IRA conversion strategy, it is usually done somewhere right before you retire, where your income is a little bit lower than your highest earning years and before you get your Social Security. If you want more information on this one, you can call us: (561) 471-7700, or you can just email me directly. It’s firstname.lastname@example.org. Thanks. This has been a Principled Wealth Moment.