Should You Convert to Roth Now? Or Later?
Roth conversions can be a useful action to plan for your future tax liability, but proper planning means considering your future tax liability and deciding when is the best time to make a conversion!
Watch this week's episode of Mike on Money, where Mike explains if you should convert to Roth now or later!
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00:00:00:05 - 00:00:23:05
Mike
Should you convert IRA or for one k money to Roth? Or should you not? And if you should, should you do it now? Should you do it later? My goal today is to give you some guidelines. So just general guidelines to help you focus on moving in a positive direction one way or another. But before I do that, remember, taxes are different for everyone.
00:00:23:06 - 00:00:48:01
Mike
The tax code is unfortunately very complex and it can lead to some strange outcomes when you take the same strategy and apply it to different people. Should you do Roth conversions or not? I have a very simple framework to share with you to help answer that question. Let's imagine a simple cross here, and this is really a matrix.
00:00:48:11 - 00:01:18:08
Mike
And we're going to compare two moving parts here. So first is going to be time. On this side is two day and on this side is tomorrow. Here's where we are on the left today and over on the right, down the row. And tomorrow might be after retirement is when it usually is in this discussion, but not always.
00:01:18:11 - 00:01:50:28
Mike
Here's the other thing. The other axis that we need to look at, low tax brackets and high tax brackets. Let's go ahead and take a look at how we would use this matrix to determine whether or not you should do Roth conversions. Let's imagine that you're going to be in a low tax bracket both today. Let's say you're in a low tax bracket today and you're going to be in a low tax bracket tomorrow.