Retirement investing with Roth IRAs have become more popular as the benefits of these Roth accounts can come in the form of withdrawing earnings tax-free and no Required Minimum Distributions, but there are some drawbacks which investors may need to consider before converting a traditional IRA to a Roth account, as some consumers may simply not be in the position to benefit from this type of retirement investing restructuring. While last year brought the option for investors to convert from a traditional IRA to a Roth account and the ability to pay these taxes incurred over a longer span of time, proper research into one’s personal financial situation and potential future tax bracket will be needed before a Roth conversion is conducted after retirement.
However, for consumers who may worry about factors like the Required Minimum Distributions they will meet, Roth IRAs can be more advantageous especially when they are used as a part of a diversified retirement portfolio. Some tax-deferred retirement investments may be in place in the life of a particular investor, but there are also outside investments which may have been made that could also help with a conversion or set a situation in place that would allow an investor to convert traditional IRA funds to a Roth account and leave them alone for years into their retirement.
As an example, some individuals may be able to live off of other sources of retirement investments, like a 401(k) plan, for years after they have left their job, but if they had a traditional IRA, the Required Minimum Distributions will have to be taken and this could increase their income and move them into a higher tax bracket, which could result in more money lost to taxes and the fact that withdrawals are required. Yet, with a Roth IRA, many see the benefits of converting because they can, again, leave funds in a Roth account for as long as they wish, which would ideally allow them to continue to grow for years down the road.
However, advisors caution against converting to a Roth IRA without doing the proper research as, according to an article on Forbes.com, some of these drawbacks to convert into a Roth IRA could be that it increases an investor’s taxable income, these conversions will also require that taxes be paid, which when all of these aspects are considered, could either lower the overall funds in an IRA conversion or necessitate that capital from other investment sources be used to pay taxes. Yet, for those who are situation where they may be able to recover from these losses or simply benefit from allowing Roth IRA funds to remain in place without the requirement of the Minimum Distributions, converting has been considered more so in the recent months simply because a Roth IRA could extend the life of an investor’s retirement funds.