Ed Slott: Why you may not want to convert all your IRAs to Roths
Goal should be to get IRA funds out at the lowest tax rate possible, says tax specialist and founder of Ed Slott & Co.
Transcript:
[Ed Slott] When talking about Roth conversions with your clients, even if you love your Roth IRAs, like I do because eventually all those funds come out tax free, there may be some times you don’t want to convert all your funds to a Roth IRA.
Why? Well one of the key tax concepts is to get your IRA money out at the lowest tax possible.
Now, many clients may have expenses or deductions that will be wasted if the only funds available to pay those items are sitting in a Roth IRA, because that money has already been taxed.
I’ll give you an example: Let’s say a client later in life has huge medical deductions and the only funds available to pay those funds are Roth IRAs. That’s a wasted deduction. You never want to waste a tax benefit. So in that case it might pay to leave some traditional IRA funds not converted so they can be withdrawn and get a corresponding deduction.
You may also want to keep some traditional IRA funds around to take advantage of lower tax brackets, or business losses. Or even for those of 70 and a half years old, Qualified Charitable Distributions, which are only available to IRA owners 70 and half years old or older.
So the point is, you may want to keep some IRA funds available so they can be withdrawn at low or maybe no tax – and that’s the best way to do long-term planning, even for Roth IRA lovers like me.
