What is the Roth IRA conversion deadline?

If you are one of the many people who dream of having a large retirement nest egg, you need to be maximizing your contributions to a 401(k) account and an IRA account. IRA accounts may have much lower contribution limits than a 401(k) account — $6,000 for an IRA and $19,500 for a 401(k) — but you have more control over your investments with it, and it is subject to different rules.

There are a few different types of IRAs, primarily the traditional IRA and Roth IRA. A traditional IRA is similar to a 401(k) in that your contributions are made with pretax dollars and you pay taxes when you withdraw. With a Roth IRA, you make contributions with post-tax dollars, so it does not give you a tax advantage now, but you do not pay taxes when making a withdrawal.

Toward the end of the year is a great time to consider making some adjustments to your investment portfolio. If you have a traditional IRA account, you should take a moment to reflect on whether you should convert it into a Roth IRA.

Roth IRA conversion deadline

There is no deadline for converting traditional IRA savings into Roth IRA savings, nor are there any limits on the number of conversions you may make or a limit of how much you may convert. 

It is important to note that the converted balance of moving pretax savings that you move from a traditional IRA to a Roth IRA will be considered taxable income. You must pay the taxes from other sources and not from the proceeds from the IRA.  In short, you want to roll over 100% of the amount withdrawn from the IRA in order to make the conversion most beneficial. Once in your Roth IRA account, your investments can grow tax-free as if they had always been in your Roth IRA.

Benefits and risks of making a Roth IRA conversion

So, it is good news that there is no deadline for making a Roth IRA conversion, but you might be wondering if you should even do it. Here are some potential benefits and risks:

Benefits:

• Increased flexibility — Tax-free distributions help with tax planning and opening up retirement planning options.
  
• No RMDs — RMDs (required minimum distributions) are minimum amounts you must withdraw from your retirement accounts. Roth IRAs are not subject to RMD requirements.
  
• Helps if you expect tax bracket stability — If you expect to remain in a similar tax bracket when you retire, it can be beneficial to pay taxes on your conversions and receive the benefit of no payments when making a withdrawal. 

Risks:

• More taxes upfront — You have to pay taxes on your conversions. Consider the cost of making a conversion versus the cost of paying taxes later with your traditional IRA and decide which is better for you.
  
• Cannot reverse the conversion — IRA conversions are permanent. You should be confident in your decision before making a conversion.
  
• Future tax rates are unknown — If tax rates are lower in the future (although it seems unlikely), then there is no reason to pay more taxes now on your Roth IRA when you could be paying less when making a withdrawal from your traditional IRA in the future.

Talk to a ProVise CFP® professional about your retirement planning strategy

Are you dreaming of growing a large retirement nest egg but are unsure how to reach your goals? A seasoned financial professional can help you make decisions like whether to convert your traditional IRA savings into Roth IRA savings. 

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about saving for your retirement? Contact ProVise today to schedule a complimentary consultation.