With a new president sworn in, many retirees are left wondering: what changes might this bring to their financial security? Political transitions often bring uncertainty, and it’s natural to feel anxious about the potential impacts on your retirement. The truth is, no one can predict exactly how policies will evolve or how they will affect your financial plans.
That’s why it’s crucial to focus on what you can control. My approach is to insulate retirees from the volatility that elections—and the economy—can bring. Retirees consistently express a strong preference for certainty and guarantee over risk and speculation, a sentiment backed by numerous surveys. Unfortunately, satisfaction among retirees has steadily declined since the 401(k) became a common retirement tool, largely due to market volatility and rising tax risks.
But here’s the good news: addressing these concerns isn’t as complicated as you might think. The key is creating guaranteed income streams that you cannot outlive and ensuring your assets are protected from shifting tax laws. Let me share an example that highlights the importance of tax-efficient retirement planning.
Comparing Two Portfolios:
- Portfolio A: Imagine you have $1,000,000 in a traditional IRA and withdraw 5% annually for income. That’s $50,000 gross per year. However, after paying state and federal taxes (at a combined 25% rate), your net income drops to $37,500 annually.
- Portfolio B: Now consider a Roth IRA with $750,000. If you withdraw the same 5% annually, you’ll also receive $37,500 net income—because Roth withdrawals are tax-free.
At first glance, the results seem the same, but they are not. Here are reasons why Roth conversions are a powerful strategy.
Why Consider a Roth Conversion?
- Future Tax Increases: With the national debt growing, higher taxes are a real possibility. Protecting your retirement from future tax hikes is wise.
- Spousal Tax Implications: When one spouse passes away, the surviving spouse must file as a single taxpayer, which often results in higher taxes.
- Inheritance Rules: Beneficiaries of traditional IRAs must distribute the funds within 5-10 years, potentially triggering significant tax burdens. Roth IRAs eliminate this issue.
- No Required Minimum Distributions (RMDs): Roth IRAs don’t require RMDs for you or your spouse. This allows your money to grow tax-free until it’s needed.
- Savings on Management Fees: If your traditional IRA is in a managed account with advisory fees, converting to a Roth can save you money. You’ll no longer pay fees on funds used to cover taxes.
The Roth Conversion Process
Successfully converting traditional IRAs to Roth IRAs requires expertise. It’s critical to determine how much to convert each year to minimize lifetime taxes while avoiding higher Medicare premiums (IRMAA). This process not only reduces your tax burden but can also save your heirs thousands of dollars.
Plan for a Secure Retirement
If you’re ready to take control of your retirement and explore the benefits of Roth conversions, I’m here to help. My expertise ensures you can reduce taxes, avoid unnecessary fees, and safeguard your legacy for the next generation.
To schedule a personal consultation, contact my office at (828) 559-0299 and ask for Morgan. You can also email her directly at Morgan.wylie@retirerm.com. Together, we’ll create a plan that gives you peace of mind—no matter who’s in the White House.