Roth IRA rules are complicated and an example of Congress "simplifying" the tax code. Yeah, right! So this topic can save you a lot, but admittedly is not a fun read. In a nutshell... IF YOU WERE PLANNING A CONVERSION, DO IT NOW.
Here we go with the details. Roll tape.
You can minimize the taxable amount of a Roth conversion (see definition below) by choosing to convert on a date when the value is low... such as after a drop in the market. You are taxed on the value on that one day. So choose a day when your account is LOW and celebrate the market drop!!!.
Undo and Redo options:
If you already did a 2015 (last year) Roth conversion... when the value was high, there is an "UNDO" available that allows you to change your mind as late as October of 2016. Use your "undo" to escape paying taxes on money that no longer exists due to a market drop. You can "REDO" the conversion and use today's date instead as your conversion date. The lower the value, the less tax you pay. So this may make sense for you if the monies are worth much less today. One small issue which can be good or bad depending on circumstances... the conversion would now be taxable in 2016 rather than 2015.
What is a Roth conversion?
A Roth conversion is moving money into a Roth IRA from an existing retirement plan (usually a traditional IRA or 401k).
Why would you do a Roth conversion?
Roth IRAs deliver tax-free distributions in later years including the investment growth along the way... ALL TAX-FREE. You should discuss first with your tax advisor to fully understand the implications and other factors that may make this a bad idea.
Do I have to convert the entire balance?
No. You can convert all or just portions of an existing retirement account.
You may need a stiff drink after reading through this. If you made it this far through, your next drink is on me. Happy weekend and use a designated driver!
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If you need any help... www.baboiancpa.com