Don’t Miss Out on Roth IRA Tax Benefits at This Unique Time

• The Biden Administration has been busy since inauguration day, and after calming the pandemic, many expect the Democrats to turn their attention to taxes. 

• We do not know for certain what tax increases we may see in any legislation passed in 2021. However, if we use Biden’s campaign proposals as a guide, we expect tax rates to increase on those making over $400k. Couple these increases with some limitations on deductions, and we could be looking at substantial increases in overall taxes owed (“effective tax rate”) on households making over $400k. 
• Even without meaningful tax changes from a Biden Administration, the Trump tax reductions are set to expire in 2025, so we do expect taxes to increase in the future. 

Consider a Roth IRA Conversion

• For those in a situation where their current tax rate is lower than their expected future tax rate (either because they expect their income to increase significantly in the future and/or they expect tax rates to increase in the future), considering a conversion of Traditional / Rollover IRA dollars to Roth IRA dollars could be wise. 
• Now is a particularly good time to be considering this strategy because tax rates today are, historically speaking, very favorable. A conversion allows you to lock in today’s tax rate on money that you will withdraw in the future when tax rates are presumably higher. 
• In a Traditional IRA, your principal and your growth will all be taxed upon withdrawal at whatever the future tax rates are (a big unknown!). In a Roth IRA, though, you pay taxes now at a known tax rate and then all future growth is free from federal tax.

Time horizon matters for IRA conversion considerations. The longer you have for money to compound tax free in the Roth, the more this strategy may make sense to consider.

 

Interview: Lauren Oschman

Lauren Oschman, CFP® is a financial advisor for some of the nation’s highest caliber physicians. She holds an economics degree from Vanderbilt University and completed her financial training at Emerson University. Along with these prestigious degrees, Oschman has over a decade of expertise in financial matters for high net worth individuals. 

Oschman delivers financial education programs to medical residents & fellows nationwide (Vanderbilt, Dartmouth, Rush, OrthoCarolina and many others), has built a $1 million revenue financial planning business, and co-founded Vestia Personal Wealth Advisors, and is an expert in helping physicians attain their financial goals—and has a niche passion for working with high-caliber female surgeons, and volunteers as a CFP® WIN (Women’s Initiative) Advocate to raise awareness about the profession for young women.

Her decade-long experience as an accomplished financial advisor and executive has led to her being a sought-after speaker for financial workshops throughout Alabama, Georgia—and Tennessee, where she has happily resided with her husband and two young children.