Tax Tip #119

An Opportunity to Pay More Tax in 2022 Might Be a Smart Move

In what has been called a bear market for 2022, with income down, consider converting all or some of your traditional IRA to a Roth IRA before 2022 ends. The conversion causes additional 2022 income which increases the tax liability but if taxable income is lower than “normal”, it is something that could make sense. The benefit is, assuming the qualifications are met, when the money is withdrawn from the Roth IRA, there is no tax to pay on the distribution. With a traditional IRA, a distribution is included in taxable income.

This is known as reverse tax planning. However, before the conversion, reach out to a team member to discuss in more detail to determine if this makes sense.