Created: December 12, 2021
Modified: September 9, 2022

Episode 60: What Should I Do Before the End of the Year?

Today’s question is, “What should I do before the end of the year?”

One of the biggest and most important things you can do, and what Wendy and I have done, is to decide whether to do a Roth conversion.

What is a Roth Conversion?

A Roth conversion is when you transfer money from a traditional retirement account, might be an IRA or 401(k), and convert that over to a Roth. Traditional retirement accounts defer the requirement to pay taxes on it until a future date, whereas in a Roth, neither you or your heirs will need to pay taxes in the future, and all the growth is tax free.

Why a Roth Conversion?

To make that conversion from traditional retirement over to Roth, you have to pay taxes when the money transfers over. The question is, are you better off paying taxes today and allowing that money in the future to be tax free? Or are you better off deferring the taxes today and letting the money in the future just be taxable? Wendy and I have decided to make a big Roth conversion this year because we believe our taxes personally are going up, and for an estate planning purposes. If I can pay some taxes today, that money that I paid in taxes doesn’t get taxed in the future. There’s no tax on the tax and all that gets a little technical.

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The bottom line is, you need to be analyzing right now if it makes sense for you to pay some taxes today before the end of the year. Because taxes on higher income earners will go up in the future, they may go up next year, they may go up a few years from now. They will go up. I can sit here and tell you that, and you better make sure that your lifetime tax burden is as low as possible. Sometimes that means paying taxes today so that you don’t have to pay taxes in the future. A great financial advisor can help you figure that out.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, download your copy of our book ROTH IRA Conversion: 7 Things to Know.

P.P.S. Feel free to submit questions here for a chance to have them answered!

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