Common Roth Conversion Mistakes Could Cost You Thousands

Many Americans are making expensive mistakes when converting their traditional retirement accounts to Roth IRAs (retirement accounts where you pay taxes now but withdraw money tax-free later), according to financial experts.

The biggest error? Converting too much money at once. When you convert a traditional IRA (retirement account where you get tax breaks now but pay taxes when you withdraw) to a Roth IRA, you must pay income taxes on the converted amount. Converting a large sum in one year could push you into a higher tax bracket, meaning you'll pay more taxes than necessary.

Here are the most common Roth conversion mistakes:

• Ignoring your current tax bracket - Converting $100,000 when you're already earning $150,000 could cost you thousands in extra taxes • Not planning for the tax bill - You need cash on hand to pay taxes on the conversion • Converting during high-income years - It's better to convert when your income is lower • Forgetting state taxes - Some states tax Roth conversions heavily

Financial advisors recommend spreading conversions over several years to minimize the tax impact. They also suggest converting during market downturns when account values are lower, or in years when your income drops.

The key is careful planning. A Roth conversion can save you money in retirement, but only if you avoid these costly mistakes. Consider consulting a tax professional before making any major retirement account changes.

This is an AI-generated summary. Read the original article at: https://www.marketwatch.com/story/you-may-be-making-a-big-mistake-with-your-roth-conversion-this-expert-says-27fe810c?mod=mw_rss_topstories