Buzz
Although the stock market has been struggling recently, there’s no need to panic. In fact, it presents a prime opportunity for certain financial moves. For example, if you’re considering converting to a Roth 401(k) or IRA, now could be the perfect time.
The Roth IRA and Roth 401(k) offer an incredible tax advantage: tax-free growth. If you're planning to convert your traditional IRA or roll over a 401(k) to tap into this benefit, be aware that you'll owe taxes when making the conversion. Given the current dip in many investment account balances, this might be the ideal moment to make that conversion.
Katie Taylor from Fidelity Investments shares her insights:
If your account has shrunk due to market fluctuations, it could result in less tax owed. Converting your savings to a Roth account can be particularly advantageous, especially for younger workers or anyone anticipating a higher tax rate during retirement.
In short, a lower balance means you’ll owe less in taxes when converting. After you make the conversion, you'll benefit from tax-free growth, and your retirement withdrawals will also be tax-free. Investopedia agrees, noting that another optimal time to convert is when your tax bracket is lower (i.e., when your taxable income for the year is minimal). This also helps reduce the amount of taxes you'll pay.
For further details, refer to the link below.
Photo by ☰☵ Michele M. F.
