Craig Wear, CFP®, explains how to control when you pay taxes through strategic planning. Roth conversions let you move money from traditional retirement accounts into Roth IRAs, pay taxes upfront, then withdraw tax-free forever. This reduces required minimum distributions and shields your heirs from surprise tax bills.
Well, avoiding taxes completely is impossible, or in most cases illegal. But instead of avoiding them or paying them when the IRS makes us, we can retain control of the timing and decide when those taxes are paid. And that's where a good tax plan comes in. See, most people wait until retirement withdrawals or widowhood or inheritance trigger the tax bill. But by that point, the tax system is already working against you. I mean, the cake is baked and you just have to deal with it. So what do you do instead? Well, by taking some money out of your retirement accounts and putting it into Roth over time, you move your tax-deferred wealth into a tax-free savings account. And that's exactly what a Roth conversion does. You pay the taxes when the money leaves the traditional IRA. And then after that, the money keeps growing in the Roth IRA and withdrawals from the Roth are tax-free for everybody, including the kids. That way we keep RMDs down and we protect our spouse and our kids from that unexpected tax bomb.
