Considering a Roth Conversion

Before year-end, you may want to consider a Roth conversion, if you have not already done so. Currently, there is no income limit for a Roth conversion. Therefore, it may be beneficial to convert funds in a pre-tax IRA to a Roth, potentially avoid higher future tax rates on your eventual withdrawals. Qualified withdrawals from a Roth IRA are free from federal income tax. Additionally, withdrawals are not required, so a Roth may result in additional money being transferred to your heirs.

If you convert pre-tax money today, you will have to pay taxes at your current marginal rate on the amount converted. With the increasing likelihood of rising tax rates next year, accelerating income into this year may be a beneficial move for certain investors.

In 2013, investors are scheduled to see a 3.8% Medicare surtax on investment income for those with modified adjusted gross incomes (MAGI) above $200,000 for individuals and $250,000 for married filing jointly. While a Roth conversion in 2013 would not be considered investment income, it could increase your MAGI above the threshold, subjecting other investment income to the Medicare surtax. This surtax, combined with potentially higher marginal rates, makes 2012 attractive for conversions.

We recommend consulting a financial planner or C.P.A. when considering a one-time event that could greatly affect what you pay in taxes. At Henssler Financial, we believe you should Live Ready, and that includes understanding how taxes affect your wealth. If you have any questions about your wealth, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.

Disclosures

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.