Hi Money Minder,
So, I’ve been thinking about converting my old IRAs to Roth IRAs, but I’m a bit confused about whether it’s worth it, especially since I’m already in a high tax bracket. My old IRAs total about 15K.
I’m not sure if I’ll make under the 161K limit this year, so I’m waiting until after the third quarter to make a decision. I’m already maxing out my employer’s 401K contributions, and I feel like I’m a bit behind on my retirement savings, hence the interest in making IRA contributions this year.
Some more details: I have an emergency fund, saving for home repairs, low mortgage rate, no car payments, and student loans under control. My goal is to retire or go part-time in 25 years.
Any advice on whether I should go ahead with the Roth conversions?
Thanks!
Response from THE MONEY MINDER:
Hello There,
Congratulations on taking the time to evaluate your financial situation and plan for your future retirement. It’s great that you are considering the option of converting your old IRAs to Roth IRAs to potentially make contributions. When deciding whether it’s worth it to convert old IRAs and pay the associated taxes and fees, it’s essential to consider your current tax bracket, future tax implications, and your long-term retirement goals.
Given that you are already in a high tax bracket, converting your old IRAs to Roth IRAs could potentially provide tax-free growth and withdrawals in retirement. However, it’s crucial to calculate the cost-benefit analysis of paying taxes now versus potentially benefiting from tax-free withdrawals later on. You may want to consult with a financial advisor or tax professional to assess the impact of the conversion on your current and future tax situation based on your income level and retirement goals.
Considering your current financial situation and goals, it’s commendable that you are maxing out your employer’s 401K contributions and looking to make additional IRA contributions with your extra money. Since you already have a well-funded emergency fund and are saving for future home repairs, it may be a good idea to prioritize retirement savings through IRAs if it aligns with your long-term financial goals.
Ultimately, your decision to convert old IRAs to Roth IRAs should be based on your individual circumstances, tax situation, and retirement objectives. Taking a practical and realistic approach by conducting thorough research, consulting with professionals, and carefully evaluating the potential benefits and costs can help you make an informed decision that aligns with your financial goals. Remember that financial planning is a journey, and making informed decisions now can have a significant impact on your future financial well-being. Good luck with your financial planning journey!
Farewell from THE MONEY MINDER.
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