Brian Livesay, The San Diego Retirement Guardian | Tax Free Roth Conversions

Brian Livesay, The San Diego Retirement Guardian says, “Individual Retirement Accounts are an excellent way to grow your investments tax free but there are two types of IRAs and it is important you understand the differences between them.”

Traditional IRAs and Roth IRAs both allow investments to grow tax free. Contributions to a Roth IRA come from money that has already been taxed unlike Traditional IRAs where contributions are from pre-taxed funds. Since Roth IRAs are taxed before the funds are invested they are good way to control your tax liabilities because the tax rates are known unlike a Traditional IRA. Traditional IRAs defer tax payments until withdrawals are taken years in the future with unknown tax rates. Roth IRAs allow for tax free withdrawals after an individual has reached age 59 ½. Traditional IRAs are taxed at ordinary income tax rates at the time of withdrawal if after age 59 1/2. Both types have an early withdrawal penalty if funds are taken before 59 ½.

The IRS allows individuals to convert Traditional IRAs to a Roth IRA allowing individuals to diversify tax liabilities and control tax payments. The conversion must take place within sixty days and tax will be paid on the conversion amount but the growth and withdrawals will not be taxed in the future. Conversions allow individuals to control tax liabilities since the tax payer can choose the best year for conversion based on their tax circumstances. High income earners can also convert from a Traditional to a Roth IRA since there are currently no income restriction like there are on annual contributions to a Roth IRA. The converted funds will be included in the tax payer’s ordinary income in the year of conversion so converting in years where a tax payer’s ordinary income is lower or the tax payer has excessive deductions is an excellent way to control tax liabilities. The converted funds are considered ordinary income for tax purposes so converting in a year were the tax payer is in a lower than normal tax bracket allows tax payers to avoid paying possibly higher tax on retirement funds in the future.

Roth conversions are a tax planning tool. Knowing the future is impossible but conversions allow the tax payer to work with their current situation and known factors to make informed tax decisions. Challenging financial years can actually benefit the tax payer who takes advantage of a Roth conversion.

For more information visit Brian Ray Livesay The San Diego Retirement Guardian Who Is Page at: in the San Diego Professional Journal.

Brian Ray Livesay – The Retirement Guardian

You may contact him at his office:
Livesay Capital Solutions Inc.
1761 Hotel Circle S. Ste 360
San Diego, CA 92108

Call at (866) 726-0725 / (619) 281-8377
Or visit his website at: