Craig Wear, CFP® explains why now (before 2028) may be an ideal time for Roth conversions because current tax brackets are historically low and many deductions are locked into law through 2028. He argues waiting could lead to substantially higher taxes later if rates or deductions change; converting traditional IRAs/401(k)s to Roth accounts pays tax now but shields future growth from tax. He recommends spreading conversions over the next few years to hit an optimal tax bracket, noting the optimal strategy varies by individual.
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Why now might be the perfect time for Roth conversion. 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.
