Roth IRA Conversions and the new tax law
The new tax law should be causing Financial Planners and Tax Advisers to have more of their clients undertake Roth IRA conversions due to the fact that many experts agree that Federal income tax rates must increase because the Federal debt is twenty trillion dollars and growing rapidly. I personally feel that I will never see lower Federal income tax rates in my life than the rates in place for 2018. These rates are scheduled to be in place until 2025; however, many experts feel that at some point Congress will increase the tax rates and this may well happen before 2026. I personally think tax rates will increase before 2026 because I think Congress will change the tax laws and increase rates due to the aging population and the sky rocketing national debt.
Roth IRA conversions are appropriate for many people who feel their Federal income tax rates will be the same or higher in retirement than they are now.
Under the new tax law the 12% Federal income tax bracket ends at:
- Single filers, $38,700
- Joint filers, $77,400
- Head of Household, $51,800
I expect a fair number of clients to do Roth IRA conversions in 2018 and 2019. If you convert just enough so that all of your income is taxed in the 12% Federal income tax bracket this strategy makes all of the sense in the world. I am not necessarily against conversions in a higher tax bracket; however, that must be determined on a case by case basis.
You should discuss Roth IRA conversions with your Financial Planner. Your Financial Planner will often consult with the client’s CPA to determine how much can be converted while staying in a low income tax bracket.
I have already had this conversation with a couple of Financial Planners in the Fort Wayne area for clients we have in common.
Mike Sylvester, CPA/ABV, MBA