If you watch CNBC, listen to the radio, or follow financial news, you’ve probably noticed more advisors discussing Roth conversions. So, why is everyone suddenly talking about Roth conversions?
Well, there are two major reasons:
The SECURE 2.0 Act increased the age at which individuals must start taking RMDs from traditional IRAs. As of January 1, 2023, the RMD age rose from 72 to 73, and it will increase to 75 by 2033.
This extension provides a longer window for proactive individuals to complete Roth conversions before RMDs begin. By converting portions of a traditional IRA to a Roth IRA earlier, you can:
The SECURE Act of 2019 introduced a significant change for non-spouse beneficiaries of inherited IRAs. For deaths occurring on or after January 1, 2020, most non-spouse beneficiaries are required to withdraw the full balance of the inherited IRA within 10 years.
|
Traditional Inherited IRA |
Roth Inherited IRA |
|
Taxable withdrawals |
Tax-free withdrawals (if 5-year rule met) |
|
Increases heir’s tax burden |
No additional tax burden |
| Must be emptied in 10 years |
Still must be emptied in 10 years, but tax-free
|
Here’s What Many People Overlook…
Many individuals inherit IRAs during their peak earning years. Inheriting a traditional IRA could push them into higher tax brackets due to the taxable distributions. Inheriting a Roth IRA, however, allows for tax-free withdrawals, provided the account has met the five-year holding requirement. This rule change means Roth conversions not only benefit account owners but could also significantly reduce the future tax burden on their children or other heirs.
The Planning Opportunity
With the extended window between retirement and the start of RMDs, there’s a strategic opportunity to improve long-term financial outcomes.
At Blue Bell Wealth Management, we’re committed to thoughtful, strategic planning. We have the tools and expertise to:
If you’d like to explore how Roth conversions could fit into your financial plan, we invite you to give us a call or visit www.bluebellpwm.com
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