Today I’m going to share a Roth conversion sweet spot that many people are using to get more money into their Roth IRA while paying the least amount of tax. 

As you may know, one of the advantages of having a Roth IRA is growing your money tax-free because you use post-tax dollars to fund a Roth IRA. When you retire and withdraw these funds, you will not be required to pay taxes.  Many of us wish that we had a little bit more in a Roth IRA than we do right now. And if you’re thinking about increasing the amount in your Roth IRAs, one of the best ways to do it is by converting money from a 401k or traditional IRAs to Roth. 

But the big question is how much should you convert? Because every dollar that you convert from IRA to Roth is taxable that year.

At Streamline Financial, we’ve seen people do this successfully by looking at two big gaps in the tax brackets. 

So I want to make sure that you know about these. The first big gap is the jump between the 12% tax bracket, up to the 22% bracket. And then the next big gap is from the 24% bracket, up to the 32% bracket. 

So what does this mean and how can you use this information for your benefit? 

First, look at the tax-bracket jumps outlined above.

Then, ask yourself this question, how much can you convert before you jump into the next tax bracket? Because once you are in that next tax bracket, you start paying tax on every dollar that’s converted. 

What we’ve been doing at our firm is running a lot of tax projections and then plugging different amounts in to see what the effect would be on your taxes. This is a great way to know what’s going to happen before you actually make the decision. 

To see another video about my recommendation for the best age to convert to a Roth IRA, click here. 

If you’re thinking about converting your IRA or 401k to Roth, talk to your tax person or financial advisor. Ask them about this Roth conversion sweet spot and see what makes the most sense for you.