Here’s how a Roth IRA conversion could help after a tough year

This special retirement account could be a wise investment when the economy is shakey

How a Roth IRA conversion could help after a tough economic year

DETROIT – The COVID pandemic has impacted nearly everyone’s finances, but outside of that misfortune may be a silver lining.

With many experiencing loss of jobs and/or businesses and lower income this year, the pandemic has forced us to take a closer look at our finances and consider new options to save money -- and a Roth IRA conversion might just be what the doctor ordered.

You might be able to help yourself by taking invested assets in a pre-tax traditional individual retirement account and move that money to a Roth IRA.

“You have to pay taxes when that conversion gets made, but once its in the Roth, it’s in an income tax-free investment, which is a significant benefit,” said Planning Alternatives Certified Financial Planner Nathan Mersereau. “Especially as we look down the road and anticipate higher income tax rates to come into play.”

The concern, of course, is that the government has borrowed a lot of money and higher taxes are likely to come. founder and editor, Gary Foreman, asks “Why not pay that tax now?”

“You might even want to try to do it before the end of 2020, if you still still have enough time to do it,” Foreman said. “And then, in part, because your income is down, so having a tad more taxable income now, makes perfect sense because, presumably, you’ll find a job and be able to go to work soon, and your taxable income will go up.”

Pre-tax investment accounts come with something called Required Minimum Distributions, but the Roth conversion ends that requirement when the person turns 72.

Individuals should not attempt to set up a Roth conversion on their own and are encouraged to speak with a certified financial planner or financial advisor before pulling the trigger.

About the Authors:

Rod Meloni is an Emmy Award-winning Business Editor on Local 4 News and a Certified Financial Planner™ Professional.

Dane is a producer and media enthusiast. He previously worked freelance video production and writing jobs in Michigan, Georgia and Massachusetts. Dane graduated from the Specs Howard School of Media Arts.