Roth Conversions 101: Help Maximize Your Retirement Savings

Retirement planning can seem like a daunting process, with seemingly endless considerations and decisions about your financial future. That's where Roth conversions come in—a simple, yet often overlooked strategy that can help amplify your savings as you work towards retirement.

Let’s break down how they work, the potential benefits, and how to determine when to incorporate them into your financial plan.

What is a Roth Conversion?

Roth conversions involve transferring funds from a traditional IRA or 401(k) into a Roth IRA. Unlike traditional retirement accounts that require you to pay taxes on withdrawals, Roth IRAs allow your money to grow over time and make withdrawals in retirement tax-free.

So, what's the catch? The IRS requires you to pay taxes on this money up front. In this case, taxes will be owed on the amount you convert to Roth in the year of the conversion.

What are the Benefits?

When it comes to retirement planning, Roth conversions can be a game changer. They offer several key benefits that may help you reduce your lifetime tax liability and boost your savings growth potential.

• Tax-Free Growth: Once converted to Roth, your investments continue to grow tax-free—this can be a major plus, especially if retirement is years away.
• No Required Minimum Distributions (RMDs): Unlike traditional IRAs, Roth accounts don’t force you into making withdrawals once you reach a certain age, giving you more control over your income during retirement.
• Strategic Tax Moves: Converting during lower-earning years can help you minimize the long-term tax impact by spreading your tax liability over several years.
• Legacy Planning: Roth IRAs can be passed on tax-free, making them a top-notch tool for maximizing what you're able to give to your heirs and the financial legacy you'll leave behind.

How Else Can You Contribute to a Roth Account?

Understanding the different methods of contributing funds to a Roth account can help you determine the best approach and optimize your long-term tax planning strategy.

• Regular Roth Contributions: This method involves contributing directly to a Roth IRA using your after-tax income. The IRS allows you to invest up to a certain amount every year depending on your taxable income.²
• Backdoor Roth Contributions: If you're a high-income earner, this strategy is particularly useful in bypassing regular Roth contribution limits. By making a nondeductible contribution to a traditional IRA and then converting it to Roth, you can avoid income restrictions and lighten your tax burden over time.³
• Mega Backdoor Roth Conversions: Under certain circumstances, this strategy enables you to capitalize on after-tax 401(k) contributions by rolling them over into a Roth account. Even if your income surpasses the limits for direct Roth contributions, this approach may allow you contribute more than the standard backdoor method.⁴

How We Can Help

By understanding and leveraging Roth conversions, you could help reduce your lifetime tax burden and maximize your wealth in retirement. At Guardian Wealth Management, we specialize in helping individuals and families navigate the complexities of retirement planning and build a strategy with their unique situation and goals in mind.

Ready to elevate your financial future? Schedule a consultation today to discuss if you might benefit from incorporating Roth conversions into your financial strategy.

¹“Should You Consider a Roth IRA Conversion?” Edward Jones, 2024.
²“Amount of Roth IRA contributions that you can make for 2024” IRS.gov, September 6 2024.
³Marquit, Miranda. “Backdoor Roth IRA Guide” Forbes, November 1, 2023.
⁴“What is a ‘mega backdoor Roth’?” Fidelity Investments, 2024.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investment advisory services are offered through Guardian Wealth Management, an SEC Registered Investment Advisor.