Beware: Adviser's '35% Tax Savings' on Retirement Funds Sounds Too Good to Be True

When someone calls you out of the blue promising to save you 35% on taxes, alarm bells should ring. That's exactly what happened to one investor who was pitched a "special" way to convert their retirement savings.

The suspicious offer involved converting a 401(k) (a retirement account where you haven't paid taxes yet) to a Roth IRA (a retirement account where you pay taxes now but never again). The adviser claimed using something called "depreciation" could reduce the tax bill by 35%.

Here's why this is a red flag:

• Cold calls about money are suspicious - Real financial advisers don't randomly call people with "amazing" offers • No magic tax loopholes exist - When you convert retirement accounts, you owe taxes on the full amount, period • Depreciation doesn't apply here - Depreciation (a tax deduction for assets losing value) simply doesn't work for mutual funds in retirement accounts

Financial expert Eli Dorf confirms: "There is simply no depreciation deduction available to apply at the moment of a Roth conversion."

The reality: If you have $1 million in a traditional 401(k) and convert it all at once, you could owe about $370,000 in taxes - with no shortcuts or discounts available.

The golden rule of investing applies here: If it sounds too good to be true, it probably is. Always get a second opinion from a trusted financial professional before making major retirement decisions.

This is an AI-generated summary. Read the original article at: https://www.marketwatch.com/story/an-adviser-told-me-i-can-save-35-of-the-taxes-on-a-roth-conversion-is-that-true-7f4b4268?mod=mw_rss_topstories