“The conversation is very technical and requires a fair understanding of the employee’s tax position at the end of the year and where they can anticipate it will be in future years,” said Steele at Callan.
Indeed, a conversion isn’t right for everyone.
For instance, it might make sense if you’re in a low tax bracket now, but you expect to be in a higher bracket once you’ve retired.
On the other hand, the move might be a bad idea if you think your taxes will be lower after you’ve stopped working.
Further, the amount you’ve converted is considered income, and it’s subject to taxes.
“Look at your tax return and your taxable income, and ask ‘If I layer another $10,000 of income on top of it by doing a Roth conversion, will that put me into the next tax bracket?’” asked Yvonne Marsh, a certified financial planner and CPA at Marsh Wealth Management in Knoxville, Tennessee.
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