Is a Roth Conversion Worth It if You’re Retired?

In this clip from “Financial Planning Q&A 60” on Motley Fool Live, recorded on Jan. 26, Motley Fool contributor Dan Caplinger discusses the many factors to weigh when considering a Roth IRA conversion, and whether it could be advantageous for those retired and those with heirs.

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Dan Caplinger: “Does it make sense to do a Roth conversion if you’re retired?” Mary, the answer can definitely be yes. In fact, a lot of the time, folks who are retired can best take advantage of low tax rates. If you don’t have much in the way of income, you’re not working anymore because you’re retired, so that source of income is down, it depends on what you’re getting from your retirement accounts and the pension and other sources of taxable income. If you’re in a low tax bracket, you might actually be able to convert money from a traditional IRA to a Roth IRA without paying any tax at all if the amount that you convert plus any other income that you’ve got is below your standard deduction. This is definitely something to look at even if you do end up paying some tax on it, it might be the lowest tax bracket that you’ll ever get. More importantly, if you’re intending to leave some of this money to heirs, it may be less of a tax rate than what your heirs will pay if they’re forced to take it out after you pass away. A lot of things to think about there but, yes, it’s definitely worth considering a Roth conversion even if you are no longer working.

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