If given the option, would you prefer tax-deferred savings or tax-free savings? If you prefer tax-free savings, you may want to consider contributing to a ROTH IRA. Why, savings can grow free of taxation. So, what’s the catch? None. You just have to follow the rules. Below is a step-by-step guide to converting tax-deferred savings to tax-free savings.
Rule # 1 – ALWAYS discuss tax strategies with your tax professional (Compliance made me type this).
Rule #2 – This strategy is a two-step process: contributing money to a non-deductible IRA and then converting the account to a Roth IRA. As with any financial advice, consult your advisor prior to implementing. 2 minutes to learn and save is better than 2 days trying to figure out why you owe taxes.
Rule #3 – Once your accounts are open AND you have consulted with your advisor to ensure there are no additional tax concerns, convert either a portion or all of your existing IRA accounts to either a ROTH or BACK DOOR ROTH (if your income exceeds the allowable thresholds). Again, please consult with your tax professional or advisor to confirm your specific requirements.
Rule #4 – As long as the ROTH is open for 5 years, withdrawals could be tax-free.
If you would like to learn more, please contact our office by dialing 202.600.9605 or alternatively, you can follow this link to schedule an online meeting at your convenience.