Retire Smarter with Kevin Kroskey, CFP® & Tyler Emrick, CFA® CFP®
Business:Investing
Paying a lower tax rate today vs. what you would otherwise pay in the future on pre-tax IRA/401k dollars is a good move. They way you can do so is by converting money to a Roth IRA and paying tax in the year of the conversion.
The 2017 Tax Cuts and Jobs Act (TCJA) lowered tax rates and significantly widened tax brackets on individuals. Current law has the tax rates under the TCJA in effect through the 2025 tax year and increasing to pre-TCJA rates and brackets in 2026.
Yet, tax rates may go higher sooner. Many election models are currently forecasting Biden to win and for the Senate to flip blue. Assuming these come to fruition, the Biden Tax Plan calls for tax increases to occur before 2026. Then there are the trillions of dollars in unprecedented fiscal stimulus added to the government’s books to deal with the COVID crisis. At some point, the mounting debt has to be paid for, and various taxes are the way it must be paid.
Thus 2020 may be the last best year for conversions. Hear Kevin discuss these considerations in detail to empower you to take action to reduce your tax risk and improve your after-tax, spendable wealth.
Timestamps:
4:16 - Why Roth Conversions Should Be Considered Right Now
12:34 - Current Law
16:09 - What Could Be Potentially Coming Down The Road
20:15 - Items To Consider When Tax Planning
25:55 - Sense Of Urgency
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