Hi everyone, Dan Thompson here and welcome to another wise money tools video or maybe podcast depend on how you keep in touch with us. Well, at the time of this video, it's early December 2019. And you may have a few more weeks to do something that you probably should seriously consider, and that is to convert your IRA or maybe even some of your 401k to a Roth. Okay, this is called a Roth conversion. Now, why would you want to convert any funds to a Roth? Well, a couple things. You may be in the lowest tax bracket of your lifetime. You know, I know most financial advisors kind of assume you're gonna barely be surviving during retirement, and thus you're gonna be in a lower income tax bracket. They think because you know, you probably paid off your home, you don't have any debt, no kids. And by the time you retire, you can live on a whole lot less. But seriously, who wants to do that? I mean, these are your golden years, have fun, spend some money.


That's only possible though, if you've planned well and you've got money to spend, right? Well, I actually don't see many retirees going into a lower tax bracket. Again, if they've had any measure of success in their finances. I see a lot of them at least in the same tax bracket and some actually creeping into higher tax brackets. What's worse, if your tax bracket gets to a certain point, now your Social Security is gonna get taxed. And that can make for an even higher tax situation and really one of the most unfair taxes out there. You've paid all these years into social security. And then if you just happen to make a little too much your Social Security gets taxed. Anyway, once you convert to a Roth, basically what happens is you take a traditional IRA or a 401k, a lot of employers have a Roth conversion. And you convert it to the Roth, you're gonna pay tax on that money right now this year.


But then what happens is you will never pay tax on any of the growth from this point going forward. It's a powerful concept. And you don't want to just ignore it or discount it, because it can be huge. You can convert all or a portion of your retirement plans to Ross and again, as I was saying, some employers even have a Roth option within their plans. Now, the downside to the conversion is obviously the taxes. They've got to be paid this year. And what you don't want to do is take that tax burden if you will, or the tax bite from the rock proceeds. So let me give you an example. Let's just say you have $100,000 that you want to convert, and you're in a 24% tax bracket. That means you're gonna have to pay $24,000 in taxes this year. But you want to be able to take this $24,000 from another account, a savings account, a money market, CD, that's renewing any low or non producing account would be better for you to take that money out of.


You don't want to take it out of the Roth itself, because that takes that $24,000 and you give up the opportunity for that to grow and compound literally forever. And that can mean 10s if not hundreds of thousands of dollars depending on your age, and the years you have ahead that you can let it grow. So converting now would mean you got to get rid of the tax you got to pay the tax now. But then never paying tax on the growth from here on out. And again, that could be huge. So consider doing a Roth conversion, if you think you'll be making more money in the future. You have the cash to pay the taxes now out of pocket, and you have a decent place to invest the money that you think will do well over the years. Now, you don't have to convert at all. Maybe you've just got a few thousand bucks that you can put toward the taxes. Well, quick calculation, maybe you only convert 10 or 12 or 15 or $20,000, whatever that is, but it's worth thinking about doing that conversion.


And again, you just got a couple weeks before that is before the years up, and then you gotta wait till next year. So what about contributing to a Roth. Well for 2020 so that's next year, if your modified adjusted gross income is higher than $139,000 if you're single. And by the way, that's $137,000 for 2019 Or if it's $206,000, married filing jointly next year or $203,000 this year, you can do a Roth. If it's higher than those numbers. You can even do a Roth. If you do happen to be in those income tax brackets, and you still want to have a Roth, you can do what's called a backdoor Roth. It's a little bit of a process requires a few steps, but it can be done. What you basically do is you make a non deductible contribution to a traditional IRA, then you convert it to a Roth down the road. Now, when you do a non deductible contribution to an IRA means you make too much you don't get the deduction that you can still put money in the IRA for the tax deferral.


The problem again with an IRA, is it eventually that's gonna be tax coming out. So you put it into a traditional IRA then you convert it to a rough. All right. So all this is good. Well, it's a lot of work. And you can only contribute, you know, like $6,000 to a traditional IRA. And again, if you're in those higher income tax bracket, you may be looking to figure out a way to save more tax money than just on $6,000. Well, there's another way, and it's a Roth like account, but it's got substantially higher limits on it, in terms of how much you can put in. In fact, you can almost put in unlimited contributions by doing some various strategies. It can also be a much safer place to invest, because you can find places where you have zero loss potential, which can be huge. Particularly if your only choices are to go buy a mutual fund, or some other type of investment where you're just throwing money in and crossing your fingers.


What's even better is you don't have the rules that go along with traditional retirement plans, such as waiting until you're 59 and a half to access the funds. Or you have to take a required minimum distribution when you hit seven and a half. So you kind of want to evaluate your situation. But it can be a good idea to do a conversion on your Roth over the next few weeks. Because you've got to do it before the end of the year. Going forward. If a Ross sounds like a good solution for you. You probably want to consider exploring how this Roth like account can produce even better results for you and have much more access to your funds. It's pretty easy, and quite a benefit for your family too. Alright, well that's it for this video, you probably have a question or two. Make sure you send them to questions at wise money tools.com. Don't forget to subscribe and if you want to talk about this You want to talk about how a Roth or a Roth like account might fit in your situation, click on the time trade link below. And we'll spend a few minutes together and see what might fit best.


So evaluate your situation. If you can, it may be a good idea to do your Roth conversion the next few weeks before the end of the year going forward. If a Roth sounds like a good solution for you, you probably also want to consider exploring how this Roth like account can produce even better results for you and give you much more flexibility. It's pretty easy, and it's quite a benefit for your family too. Well, that's it for this video. Don't forget to subscribe so you don't miss the video. And if you have any questions shoot me the questions at wise money tools.com. I'm sure this video is sparked some questions and happy to answer them. If you want to spend a few minutes together talking about your particular situation. Click on that time trade blink below. Pick out a time we'll get together and talk for a few minutes. Well that's it. Until next week. Take care.