James Lange, CPA, investment advisor and Roth conversion expert, photographed for Forbes in January 2019 by Tim Pannell.

New Trump Tax Laws Make 2019 the Best Year for Millions of Americans to do a Roth IRA Conversion:  PART TWO

How do you know if a Roth IRA conversion would be a good idea for you? How much should you convert? When is the best time to make the conversion? Should you do it all at once or perhaps make a series of smaller Roth IRA conversions over a period of years?

Unfortunately, there’s no “one-size-fits-all” answer to those questions. That’s why I recommend “running the numbers.” “Running the numbers” involves constructing plausible scenarios using reasonable assumptions for your current and future tax brackets, your spending, earning, and investing patterns, and then testing different courses of action. It is a combination of art and science.

The first projection may exclude all Roth conversions, which allows you to see where your finances will stand at the end of your life and what maintaining the status quo will mean for your heirs. A second projection might use the same assumptions but show the outcome if you convert your entire traditional IRA to a Roth IRA in one tax year. A third projection might include a series of partial conversions, perhaps over four years during the years after you retire, but before you turn age 70 when you will have required minimum distributions and will be receiving your full Social Security benefits. Taking the time to construct different scenarios is critical because the best time to do a Roth IRA conversion is not the same for everyone.

One major consideration that is overlooked by many advisors is Social Security. The classic “sweet spot” to make a Roth conversion is after you retire but before age 70. At that point, you won’t have income from your job or required minimum distributions from your retirement plans.

But I go so far as to recommend that the primary wage earner of the family delay applying for their full Social Security benefits until age 70. When planned and orchestrated, all of these factors can come together in a perfect symphony of financial opportunity, leaving your income tax bracket at an all-time low, and cued-up for a Roth IRA conversion.

An additional benefit of “running the numbers” is that you may find you are not a good candidate for a Roth IRA conversion. Many IRA owners will have higher Medicare Part B premiums if their taxable income is increased because of a Roth conversion. Other IRA owners will suffer a reduction in the benefits of the qualified dividend exclusion, and others will face additional tax in the investment income area. Many of these disadvantages may pale compared to the benefits, but the only way to know is to run the numbers first.

Ultimately, the new tax laws mean that Roth IRA conversions can benefit many more people even before retirement or who are currently in retirement. This is because, if you are married and file a joint return, you can have up to $315,000 in taxable income and still fall within the expanded 24% tax bracket. Many taxpayers who are still working, or who are over age 70 but previously sat in a high enough tax bracket to make a Roth IRA conversion unprofitable, may now find that this is the best possible time to make the change. This is especially true if you believe tax rates are likely to increase in the future.

So, what is the big takeaway? It would be a smart move for many taxpayers to analyze the merits of a Roth IRA conversion. And, if previously you determined that a Roth IRA conversion was not in your best interest, you should probably revisit the idea—times have changed.

Let’s be clear. This isn’t just about dying with the most money—you must also evaluate your priorities. One of the benefits of creating a master plan is to determine how much you can safely spend, and with a very high probability that you will never run out of money. Perhaps it won’t matter to you that your heirs could be a million dollars better off because you want to spend more money yourself. Perhaps you want to buy a second home in your dream location even if you have to use part of your Roth IRA to do it. These are personal decisions and each piece needs to fit into your retirement and estate planning puzzle. Roth IRA conversions, although financially beneficial for many people, are only one piece of puzzle.

Reprinted with permission by www.forbes.com, an online magazine where Jim is a regular contributor.

Please read Ripe Time to Roth at https://paytaxeslater.com/forbesarticle, an article published in Forbes magazine featuring Jim Lange’s Roth IRA conversion advice.  Consider whether now may be a great time for your own Roth IRA conversion. If you would like our team to “run your numbers,” the next step is to call 412-521-2732 and request a free consultation.