16 Jun Systematic Roth RIA Conversion
Challenge:
Want to Lower your Tax Liability?
Solution:
Utilize a Systematic Roth IRA Conversion!
Steps to take:
Strategically manage your tax liability in retirement planning!
Many investors do not take the time to maximize their marginal tax brackets annually and are potentially missing out on meaningful tax saving opportunities. Proactive tax planning should be part of your annual financial review with a fee-only fiduciary advisor, as it may help reduce your overall tax burden and support long-term investment growth.
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How a Roth IRA can help you!
All contributions to a Roth IRA are funded with after-tax dollars, which means you have the ability to pay zero tax on the growth of your account as well as when funds are withdrawn. Investors must follow these 2brules in order to avoid paying the 10% early withdrawal penalty and any taxes on the funds in their Roth IRA.
1. The 5-Year Rule:
Contributions: You must wait at least 5 years from when the account was initially funded to withdraw any earnings from your Roth IRA.
Conversions: You must wait at least 5 years from when a Roth conversion occurs to withdraw any converted funds.
2. The withdrawal must take place after age 59 ½, except for other qualifying exceptions.
Unlike a Traditional IRA, there are no required minimum distributions (RMDs) for Roth IRAs. This allows for greater flexibility in deciding when to withdraw/convert pre-tax funds. There are no income limits on Roth IRA conversions. This allows investors of any income level to take advantage of this tax-mitigation technique. Depending on your current tax situation, this may make sense for you.
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Why Systematic Roth IRA conversions are more effective
If conversions are made strategically, your overall tax liability can be controlled and mitigated. By utilizing your current (lower) marginal tax bracket and postponing the remaining amount for future distributions, investors can pay a lower total tax in their lifetime. If done correctly, this technique has the potential to save investors thousands!
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Tax planning services provided by Embark are intended for general informational purposes only and should not be considered tax advice. Embark is not a licensed tax advisor or CPA firm. Clients and prospective clients are strongly encouraged to consult with a qualified tax professional regarding their personal tax situation before implementing any strategy discussed. The impact of tax strategies will vary based on individual circumstances, and tax laws are subject to change at any time.
Diversification does not ensure a gain or prevent against loss in a declining market.
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