Craig Wear, CFP® explains that tax brackets and many deductions are scheduled to revert after 2028, and argues that waiting to convert tax-deferred retirement accounts to Roth accounts could substantially increase future tax bills. He defines a Roth conversion (moving money from a traditional IRA/401(k) to a Roth and paying taxes now to avoid tax on future gains) and advises spreading conversions over the next few years to hit an optimal tax bracket tailored to the individual. The video frames the pre-2028 window as a potentially significant, limited opportunity for tax savings.
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The Roth conversion window is closing. Some people think Roth conversions are a waste. They don't like paying taxes up front. In fact, they'd rather just keep their money growing now and deal with the taxes later. Plus, the process sounds complicated, so why mess with it until you have to, right? Well, here's the problem. Later might cost you a lot more than you think. Right now, tax brackets are historically low and all these deductions are locked into 2028. But when the new provisions end, deductions decrease. And who knows, we could see higher tax rates across the board. But if you wait until then, you might pay thousands or even tens of thousands or hundreds of thousand dollars more in taxes on the same money. A Roth conversion lets you move money from a tax deferred account, like a traditional IRA or 401k into a Roth. You pay taxes at today's rates and you never owe tax on the money gain, no matter how much it grows. What's the sweet spot? Well, using the next few years to spread conversions out, but finding that optimal tax bracket that allows you to avoid the most tax and have the highest tax adjusted net worth is really where the sweet spot is for you. And it's different for everybody. So while some see Roth conversions as a hassle, the truth is, for the right person, this limited window before 2028 could be a once in a lifetime tax saving opportunity.
