Save Money on Taxes by Upgrading to a Roth IRA While the Market Drops
The stock market has been pretty weak lately, and while that’s not cause for panic , now is a great time to take advantage of certain moves in money. For example, if you are thinking of upgrading to a Roth 401 (k) or IRA, now is the right time.
The Roth IRA and Roth 401 (k) have a tremendous tax advantage: tax-free growth . If you are thinking of converting your traditional IRA or moving to a 401 (k) to take advantage of this, keep in mind that you will have to pay taxes when converting. since many investment accounts currently have few balances, it may be worthwhile to go straight to this conversion.
Katie Taylor of Fidelity Investments tells us:
If your account has shrunk due to market volatility, this could mean a decrease in taxes payable, and transferring your savings to a Roth account can offer significant benefits, especially for young workers and those of all ages who expect their tax rate to be higher. retirement.
In short, a smaller balance means you have to pay less taxes on conversion. Then, once you convert, you can take advantage of the tax-free growth benefits and your retirement withdrawals are tax-free as well. Investopedia agrees , adding that another great time to convert is when your tax tier is low (in other words, when you don’t have a lot of taxable income for the year). It also reduces the amount you will be charged in taxes.
For more details please follow the link below.
Fidelity Q3 Retirement Analysis: Account Balances Shrinking, but Opportunity for Roth Transformation | BusinessWire