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What is a Roth Conversion?


The SECURE Act or The Setting Every Community Up for Retirement Enhancement Act was signed into law by President Trump on December 20th, 2019. So what does that mean for you? What changes will occur on January 1st, 2020?

One of the main changes under The SECURE Act is the elimination of Stretch IRA's for non spouses. Prior to January 1st, 2020, a beneficiary was allowed to "stretch" the required minimum distributions (RMD) over their life expectancy. Now, if you are not the spouse or a minor child of the deceased, you must liquidate the account within 10 years. Why the change? One main reason of course, to generate tax revenue! 

So what can we do to avoid paying taxes? Nothing! Death and taxes are two things we can't dodge but we can lessen the blow!

Tax rates are still historically low, some of the lowest we have seen since The Great Depression. So there is only one way for them to go, up. 

A Roth Conversion is the way we can prepare for the upcoming higher tax years and reduce RMDs. A Roth Conversion allows an individual to move money from a pre-tax account to an after-tax Roth IRA. This allows the individual to recognize that income in a lower tax year, reduce their future RMDs and allow their beneficiaries to receive money tax free. 

If you would like more information, or to look into how this may affect you personally, click on the Get In Touch tab on www.sixpointfp.com !