A common desire among newly-retired folks is, I wish I had started saving in my ROTH earlier.

ROTH IRAs can be a tax-advantage savings vehicle to allow tax-free growth, and tax-free withdrawals, if the requirements are met. Compare that to a traditional IRA where every dollar you take out gets taxed that same year. But as we’re designing this retirement income withdrawal system for clients, the real impact of taxes becomes apparent. Not just now, in the early years of retirement, but also later, 10, 15, 20 years from now, taxes impact the plan. Sometimes clients think they’ve missed the boat because they’re close to retirement and don’t have much saved in a ROTH IRA. 

Good News: It’s Not Too Late

It’s not too late to get money into your ROTH, even if you’re not currently earning a wage. If you have already retired and you’re not earning a wage, you can still get money into a ROTH. The strategy that is available to you, and many others, is the ROTH conversion. For those who are younger than 70, now is the optimal time to think about this ROTH conversion, because it has to do with the tax plan and the income plan, which are two key parts of your retirement plan

The big-picture goal is to pay tax when you’re in a lower tax bracket versus when you’re in a higher tax bracket later on. When you get to age 72, you’re forced to take out money from your IRAs. A lot of people don’t look at how fast that might compound and what withdrawals are going to actually be in their seventies, and even eighties, when we really start to see some of the impact of taxes and RMDs (Required Minimum Distributions). 

Again, the main idea is to take control over when you pay taxes! The period of time after work and before social security could be the lowest tax rates that you see. This makes it a good time to try a ROTH conversion.

If you want to get a clear picture on your income plan and your tax plan, click this link and I’d be happy to talk with you. And, as always, please remember this advice isn’t specific to you, so don’t make any decisions until you talk to your retirement planner or your tax planner.