2. Manage income tax through a conversion split
You can choose to convert the entire balance of an account or just a partial amount. This allows you to manage the income tax impact of Roth conversions by converting amounts over more than one year.
For example, assume that your IRA balance is $100,000 and you want to convert that amount to a Roth IRA. You could convert a portion of it this year, and split up the balance into conversions done over the next several years.
3. Offset tax losses and deductions
Consult with your CPA to identify any year in which you might be able to offset income tax that would be due on a conversion with tax losses and deductions. For example, if you’re operating a business that has a net operating loss, that could be used to offset income tax that might be due on a Roth conversion.
4. A Roth suitability assessment is crucial
Despite the obvious benefit of providing an opportunity for tax-free income during your retirement, there are other factors that could determine if a Roth conversion is a suitable tax strategy for you.
Before deciding whether or not to perform a Roth conversion, have your CPA perform a Roth suitability assessment.
Consider that conversions done in 2018 and after cannot be recharacterized. Which means once the conversion is done, you are stuck with it.
Get Your CPA Involved
Deciding whether to do a Roth conversion is one of the most important decisions you can make with your tax-deferred retirement accounts, as it could determine how much income tax would eventually be paid on those amounts.
Ultimately, it is your CPA that would help you to determine if and when a Roth conversion is suitable for you.
If you’re considering doing a Roth conversion, make an appointment with your CPA.
Denise Appleby is CEO of Appleby Retirement Consulting, Inc., a firm that provides a wide range of retirement products and services to financial, tax, and legal professionals. The firm’s primary goal is to help prevent mistakes from being made with retirement account transactions; and, where possible, provide solutions for mistakes that have already been made. Their products include IRA guides and other IRA educational tools for financial and tax professionals.