We’re in our 50s and have $1.5 million in traditional 401(k)s. Is it too early to start Roth conversions?
“The last adviser we worked with lost a significant portion of our portfolio.”
The couple's situation highlights a common dilemma faced by many retirees or near-retirees with substantial traditional 401(k) or IRA balances. With $1.5 million in traditional 401(k)s, they are likely facing significant tax implications in retirement, as withdrawals from these accounts are taxed as ordinary income. Considering a Roth conversion, which involves paying taxes now to convert traditional assets to a tax-free Roth IRA, can be a strategic move to manage taxes in retirement.
The timing of such a move is crucial, and the couple's age – being in their 50s – suggests it might not be too early to consider Roth conversions. However, the decision depends on various factors, including their current tax bracket, expected tax bracket in retirement, and overall financial situation. A key consideration is that they have had a negative experience with a financial adviser in the past, which underscores the importance of seeking advice from a trusted and competent professional to navigate this complex decision.
Looking ahead, the couple should watch for changes in tax laws and regulations that could impact the attractiveness of Roth conversions. Additionally, they should assess their current income needs, expenses, and cash flow to determine the optimal conversion strategy. It is also essential to consider other factors, such as required minimum distributions (RMDs) from traditional accounts, to ensure they make an informed decision that aligns with their long-term financial goals.
Originally reported by marketwatch.com. Trade-News adds analysis for finance & markets readers.