Best Roth Conversion Strategies
How To Maximize Your Retirement Savings With Your ROTH IRA
Introduction
Retirement planning is critical—but here’s a helpful tip many people don’t know about: if you don’t think about how your savings will be taxed, you could be in for a nasty surprise. As your traditional IRA account grows, you also create a large future tax liability. That’s where the Roth IRA comes in. It’s not just another account; it’s your ticket to tax-free growth. And here’s the best part: with the right strategies, you can convert your traditional accounts into Roth IRAs, unlocking even more benefits. At Torino Accounting Group, we don’t just skim the surface. We craft specialized tax plans that cut your tax bill and grow your wealth tax-free. Ready? Let’s dive into the magic of Roth conversions.
What Even Is a Roth IRA?
A Roth IRA isn’t just another retirement account—it’s a game-changer. You throw in after-tax dollars, and here’s the beauty: all that money grows tax-free. And when it’s time to retire? You can take out every single penny—tax-free.
Why You Should Care:
Tax-free withdrawals: You hit 59½, and boom—your money comes out tax-free. All of it.
No required minimum distributions (RMDs): Unlike traditional IRAs, you’re not forced to take out money at 72. Keep it growing.
Pass it on—tax-free: Leave it to your kids, your grandkids—whoever. They get it without paying taxes.
You want long-term tax-free growth? This is it.
But… There’s a Catch (Income Limits!)
Yeah, it’s not all sunshine. If you earn too much, the IRS blocks you from contributing to a Roth IRA. For 2024, if you’re making more than $146,000 (single) or $230,000 (married filing jointly), you’re out. Game over, right?
Not so fast. Enter the Backdoor Roth IRA.
Backdoor Roth IRA: The Sneaky Strategy You Need to Know
Too much income for a Roth? No problem! You can still sneak in through the back door. Here’s how: throw your money into a traditional IRA, then convert it to a Roth IRA. Yes, you’ll have to pay taxes on the conversion, but once it’s in the Roth—you’re golden. Learn more about the IRS guidelines for ROTH IRA conversions. Tax-free growth from there on out.
It’s a bit sneaky but legal.
Why "Delay Taxes" Might Be the Wrong Move
For years, they’ve told us, “Defer taxes! Save now, pay later.” But wait—does that actually make sense? Maybe not. Think about it: when you’re young, you’re probably in a lower tax bracket. Why defer those taxes to a time when you could be paying at a higher rate in retirement?
That’s a risk. A big one.
Discounted Roth Conversions: Save Big on Taxes
Alright, let’s talk about the elephant in the room: converting to a Roth IRA means taxes—upfront. That’s why a lot of people hesitate. Convert $200,000? Bam! That’s added to your income, and your tax bracket just shot up.
But here’s a hack: discounted conversion strategies. What’s that? It’s a clever way to convert assets at a lower taxable value. Use discounts like illiquidity or lack of marketability to drop the value of the assets. So, instead of converting $200,000, you might convert $120,000. Less value = less tax.
The Breakdown
Imagine this: You’ve got $200,000 in an IRA. Through a discounted conversion, you mark it down to $120,000. Now you only pay tax on the lower amount. That’s $80,000 less income to report, saving you $31,600 in taxes. You’re welcome.
The Big Picture
Roth IRAs are already amazing, but with the right conversion strategies, they’re a no-brainer. Whether you’re sneaking in through a Backdoor Roth or slashing taxes with a discounted conversion, the goal is clear: keep more of your hard-earned money. Why settle for a retirement plan that leaves you paying more in taxes later?
At Torino Accounting Group, we know how to make these strategies work for you. We help businesses and individuals craft specialized tax plans that cut income taxes, grow your money tax-free, and protect your future.
Let’s Talk
Ready to keep more of your money? Contact us today. We’ll help you cut next year’s tax bill and maximize your retirement savings. It’s what we do.