What to consider before a Roth IRA conversion

James K. Ault • July 6, 2022

Share this article

Roth IRA accounts can offer you a number of benefits – including tax-free income in retirement. This can put you at a significant advantage, given that tax rates are expected to rise in the future – and nobody knows how high they will go!

Unfortunately, not everyone qualifies for a Roth IRA, though. So, it is important to know whether or not you can set up one of these accounts – and if not, what alternate strategies are available to you, along with what you should consider before a Roth IRA conversion if you decide to go that route.

 

Are You Eligible for a Roth IRA?

One of the eligibility criteria for opening and funding a new Roth IRA is linked to the amount of income that you currently bring in, as well as the way in which you file your income tax return. For 2022, the Roth IRA income limits are as follows:

Roth IRA Income Limits (for 2022)

 

For single tax filers Phase-out starts at $129,000

Ineligible at $144,000
For married couples filing jointly and for qualifying widow(er)s Phase-out starts at $204,000

Ineligible at $208,000

 

Source: RothIRA.com

Even if you currently earn too much to qualify for opening a Roth IRA, though, there may still be ways to take advantage of this type of account. One is via a Roth IRA conversion.

Strategies for Taking Advantage of Roth IRAs – Even If You Earn “Too Much”

A Roth IRA conversion – which is sometimes also referred to as a “back door IRA” – consists of taking assets from a traditional IRA account and moving them over (or “converting” them) to a Roth.

Currently, anyone – regardless of how much income they presently earn – is allowed to take part in a Roth IRA conversion. In addition, there is no limit on the amount of money that can be transferred over from the traditional IRA account.

Going forward, once you have a Roth IRA in place, you may be able to make annual contributions into the account. At this time (in 2022), you can contribute up to $6,000 if you are age 49 or under, and an additional $1,000 in “catch up” contribution if you are age 50 or over.

Roth IRA Annual Maximum Contribution Limits (for 2022)

 

Age 49 and younger $6,000
Age 50 and over $7,000

 

Source: RothIRA.com

Does the “Cost” of an IRA Conversion Outweigh the Future Benefits?

Converting from a taxable traditional IRA over to a tax-free Roth IRA account can end up “costing” you in taxes for the year(s) in which the conversion is made. So, in addition to considering the Roth IRA income limits and the amount of the annual maximum contribution, it is also important to compare what you will have to pay in taxes now versus what you could end up saving yourself in tax payments down the road at the time of withdrawal. Yet, with today’s historically low tax rates, a Roth IRA conversion could make a lot of sense.

Another nice feature with regard to the Roth IRA is the fact that there are no required minimum distributions (RMDs) like there are with traditional IRAs and retirement plans. Therefore, once you turn age 72, you will not have to start making IRS-mandated withdrawals from the Roth account – allowing it to continue generating tax-free growth.

Still Have Questions About Roth IRAs or Retirement Income Strategies?

A Roth IRA can provide you with a great way to secure tax-free income in retirement. In doing so, there may also be strategies for setting up one or more income streams that will last for the remainder of your lifetime, no matter how long that may be.

So, if you still have questions about generating income in retirement, contact us and chat with one of our retirement income specialists. At Sooner Retirement, our primary focus is on educating consumers – as well as financial professionals – on retirement income strategies, including the use of annuities.

To get your questions answered or to learn more about generating an income stream for life, feel free to contact us at  (918) 719-1848  or by sending us an email through our secure online contact form. We look forward to hearing from you.

Newer Post >

Recent Posts

Man in blazer opening envelope at a desk, looking at papers, smiling. Bookshelf, laptop, and plant in the background.

Filling in The Gaps in Your Retirement Income

By James K. Ault • December 6, 2022
A retirement income gap represents a shortfall between the income you will need to pay your essential (and possibly some non-essential) expenses in retirement and the amount that you actually have coming in. While you may be able to sustain this pattern for some period of time, you will eventually run out of money. Then […] The post Filling in The Gaps in Your Retirement Income appeared first on James K. Ault – Sooner Retirement.
Couple reviewing paperwork together while using a laptop on a couch in a home.

Why Consider a Reverse Rollover?

By James K. Ault • November 29, 2022
If you have ever left an employer where you had a retirement savings account, you may have “rolled” those funds into a personal IRA. Doing so can allow you to take control over your money, as well as open up a much wider array of investment opportunities. But what about doing the opposite? Many investors […] The post Why Consider a Reverse Rollover? appeared first on James K. Ault – Sooner Retirement.
Older couple reviewing paperwork, laptop, coffee cup, concerned expressions.

What higher interest rates could mean for annuities

By James K. Ault • November 22, 2022
As interest rates have continued to rise, they are having a tremendous impact on home mortgages and fixed income investments. In the case of the former, rising rates can mean bigger house payments. In the latter, though, you could generate more growth and/or income. But what could higher interest rates mean for annuities? The answer […] The post What higher interest rates could mean for annuities appeared first on James K. Ault – Sooner Retirement.
An older Black man with a gray beard, writing on paper and using a calculator at a table.

How much income will you receive from an annuity?

By James K. Ault • November 15, 2022
There are many different types of annuities available in the marketplace today. These include immediate and deferred, as well as fixed, indexed, and variable. When the payments begin, and how the return is calculated, can depend on these variations. For instance, immediate annuities start to pay out income right away (or within 12 months of […] The post How much income will you receive from an annuity? appeared first on James K. Ault – Sooner Retirement.
Woman with glasses reviews bills at a table with a laptop, phone, and coffee mug.

Just how high could income taxes rise?

By James K. Ault • October 18, 2022
Nobody enjoys paying taxes. This is one of the biggest reasons why pre-tax contributions and tax-deferred growth make traditional retirement accounts so appealing – at least during your working years. But at some point, that money will be taxable upon withdrawal. With that in mind, it is important for you to have a plan in […] The post Just how high could income taxes rise? appeared first on James K. Ault – Sooner Retirement.
Man and woman smiling at a laptop, indoors. Woman has her arm on his shoulder. Coffee and notebooks on table.

Keeping Your Retirement Income on Pace With Future Inflation

By James K. Ault • October 11, 2022
Keeping your retirement income on pace with future inflation can be a significant piece to your overall financial future. Without a strategy in place, you may find your purchasing power diminishing over time – and in some cases, it could be necessary to make tough decisions regarding what, and what not, to purchase. Forgoing a […] The post Keeping Your Retirement Income on Pace With Future Inflation appeared first on James K. Ault – Sooner Retirement.
Man with gray hair sits on couch, looking at laptop, holding notebook and pen. Coffee on table.

Addressing The 3 Most Pressing Retirement Concerns

By James K. Ault • October 4, 2022
Retirement planning can pose a number of challenges. But even if you have successfully reached retirement, there are new hurdles that you may face… three in particular that can have devastating consequences if they are not planned for. With that in mind, addressing the 3 most pressing retirement concerns should be a key component of […] The post Addressing The 3 Most Pressing Retirement Concerns appeared first on James K. Ault – Sooner Retirement.
Smiling older woman with gray hair reads papers at a desk in a home office.

3 key steps to converting savings into a lifetime retirement income stream

By James K. Ault • July 20, 2022
Until just a few decades ago, many retirees could count on retirement income from three primary sources. These included an employer-sponsored defined benefit pension plan, Social Security, and personal savings or investments. Today, however, many companies have done away with the traditional “pension” plan, replacing it with defined contribution plans such as the 401(k). But, while these […] The post 3 key steps to converting savings into a lifetime retirement income stream appeared first on James K. Ault – Sooner Retirement.
Senior couple in kitchen: man kissing woman's cheek, holding wine glasses, preparing food.

What to do with your 401(k) when you retire?

By James K. Ault • July 12, 2022
Knowing that you can count on a set amount of income to arrive throughout your retirement is a key factor in how – and how well – you will live. In many cases, the largest amount of savings that a retiree has is the funds inside of an employer-sponsored retirement program like a 401(k) – […] The post What to do with your 401(k) when you retire? appeared first on James K. Ault – Sooner Retirement.