Key Advantages of Coverting to a Roth

Tax-Free withdrawals in retirement

No Required Minimum Distributions (RMDs)

Potential for tax-free inheritance

Ability to convert to guaranteed income

In 1974, Individual Retirement Accounts (IRAs) were established, allowing individuals to defer a portion of their income into tax-deferred accounts. 401(k) plans, allowing for employer sponsored payroll-deducted contributions, followed in 1981. While often described as “tax-deductible”, qualified plans actually are income deferral. They only delay, not eliminate, income tax. The carrot benefit is tax-deferred growth, which at the same earnings rate, would result in more total money.

However, there are strings attached. Taxes are ultimately due on both the deferred income and any accumulated growth at the current rate rate in which funds are disbursed. Either you or your spouse will pay the tax, or your heirs if accounts are inherited.

By year-end 2024, there is approximately $42.4 trillion in retirement assets, with a significant portion inside federally regulated qualified accounts such as IRAs, 401(k)s, and defined benefit plans. The government controls when you can use these funds through early withdrawal penalties and then Required Minimum Distributions (RMDs). Given the national debt now exceeding $36 trillion, these accounts represent a substantial revenue source for the government, makingfuture taxation breaks not likely.

It is possible to minimize or eliminate taxes on your qualified retirement funds. Wouldn’t you rather control the timing of taxation and then enjoy tax-free income for life? If an IRS-approved strategy offered this, the answer would likely be undoubtedly yes.