Now that Tax Day is over for many of us, it's time to make some moves for the 2023 tax year and beyond.
Well beyond for many is retirement. The Internal Revenue Code offers a variety of tax breaks for savings designated for post-work years. One of the most popular is the individual retirement arrangement, or IRA.
IRAs come in two versions, traditional and Roth.
Pre-tax money goes into a traditional IRA, and in some cases the contribution is tax deductible. But when you get into your 70s, you must take required minimum distributions (RMDs) from the traditional retirement account. At RMD time, those taxes are collected at your then-ordinary income tax rate.
Roth IRA contributions, on the other hand, are made with already-taxed money, and there's no immediate tax break for saving. But that downside is offset by a couple of key advantages.
In most Roth situations, Uncle Sam doesn't have a say in your distributions. You can leave Roth IRA money in the account for as long as you want. And when you do withdraw from it in retirement, you won't owe any taxes on the cash.
IRA conversion considerations: Some traditional IRA owners, especially as they get older, rethink their original IRA choice. They opt to convert that account to a Roth IRA.
There are income limits to doing this, as well as the taxes you must pay on the tax-deferred amount going from the traditional IRA to the Roth. You also must be careful to move the money in a way that ensures you don't face potential penalty charges.
The bottom line, as it is with all things tax, is that converting a traditional IRA to a Roth IRA is not a decision to be made lightly.
That's why this weekend's Saturday Shout Out is a two-part discussion between two retirement and tax experts, Ed Slott and Jeffrey Levine, in their weekly podcast The Great Retirement Debate.
Retirement gurus on IRA conversion: Slott is a CPA and nationally recognized IRA and retirement planning distribution expert. He's also a best-selling author and professional speaker. His firm, Ed Slott and Company, LLC, is the nation's leading provider of technical IRA education for financial advisors, CPAs and attorneys.
Levine is Chief Planning Officer for Buckingham Wealth Partners. Levine is a CPA and certified financial planner, as well as having a slew of other alphabetic financial credentials after his name. He's also a nationally recognized and award-winning financial advisor, speaker, and educator.
On each podcast, the duo goes head-to-head discussing retirement topics. They take opposing sides by a flip of a coin, with the goal to provide the good, bad, and necessary information listeners need to make informed decisions.
There was enough such info in the great debate over whether convert a traditional IRA to a Roth that it took two podcasts. Both broadcasts earn this weekend's shout outs.
You can read the transcripts at To Convert Or Not To Convert Pt. 1 and To Convert Or Not To Convert Pt. 2.
And since it is, after all, a podcast, each transcript page provides links to the various outlets — Apple, Spotify, Amazon, and Stitcher — where you can hear Levine's and Slott's arguments for and against Roth conversions.
You also might find these items of interest:
- April 1 is RMD deadline for some. No fooling.
- Make retirement plans now to claim the Saver's Credit
- RMD age increase and wrong notices create tax confusion for some retirement account owners
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