2017 is approaching quickly, have you thought about your retirement accounts?

For thousands of Minnesotans that invest in a 401k, IRA, or pre-tax account, a year end deadline is looming and often can be confusing. If you are considering a Roth conversion, do not confuse it with a Roth contribution. They are very much alike but are very different in their timing and management. When we make Roth Contributions, there are income limits and contribution limits, but we can also wait until April 15th to make a contribution. We can even be creative by putting more money in to a Roth IRA by doing what is called as a back door Roth. What is more important right now is the Roth conversion. If you are thinking about moving more money to a Roth, you have to make that conversion before December 31st if you want it to qualify for 2016.

How can you make a decision on making a Roth conversion before the end of the year when you don’t know what your taxes look like?

It can be a little more difficult, but that is why it is a great time to meet with your tax consultant at this time of year. If there are any significant things you can do to help your taxes out for 2016, the time is now to act, not after New Years. You limit your options when you wait until after December 31st to help with your taxes.

What should I do?

Do a tax projection with your tax advisor or financial advisor. Find out if it makes sense to do Roth IRA conversion for 2016. Once the time has passed, it may be too late and we can not go back. There are many benefits to contributing and converting money to a Roth IRA, but there are also drawbacks. Weigh the pros and cons before making a move. There are also rules when making a Roth conversion, such as your age. If you are under the age of 59 1/2, you may suffer a 10% IRS penalty if you convert the money.

Before considering making any moves, consult with your CPA or Tax Advisor. Making a Roth Conversion can significantly help your taxes in retirement, but make sure you do it correctly. Get the help you need.

 

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Don’t miss the deadline for a Roth Conversion
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