(Wednesday, June 24, 9 p.m. EST) An unusual confluence of financial, tax and investment events make converting traditional retirement account assets to Roth IRAs compelling in 2020 to retirees and those about to retire.
At a time when retirement income planning has never been so important to so many Americans, or as complex, retirees and those about to retire have a significant tax opportunity. A constellation of factors have aligned to make converting assets in traditional retirement accounts and IRAs to Roth IRAs suddenly more appealing.
Background. Tax laws affecting retirement income were reformed massively and frequently just before the virus crisis.
On January 1, 2020, just before the Covid-19 outbreak hit the U.S., a sweeping law correcting inequities in 401(k), 403(b), and other federal retirement accounts, became effective. SECURE Act was a bipartisan tax reform law correcting inequities in retirement accounts qualified for favorable tax treatment under federal tax law. To complicate things, two years before SECURE Act, the Tax Cuts & Jobs Act, a total rewrite of federal tax laws, became effective January 1, 2018.
Amid the unprecedented flurry of tax reform laws, and while those laws were still being digested, the pandemic hit. Responding to the Covid crisis, the U.S. Government once more enacted new tax laws for individuals and businesses, in a massive $2.2 trillion emergency aid package.
Coincident with multiple layers of tax changes, pandemic economics forced yields to plunge to a low unprecedented in modern U.S. history, which, along with high stock volatility, drastically changed the math around Roth IRA conversions.
Retirees and those about to retire who have faithfully saved and are in strong financial condition have an extraordinary opportunity to plan strategically for the long run.
The unusual confluence of financial, tax and investment fundamentals conspiring to make Roth conversions more compelling presents an important financial planning decision that harbors some risk and requires personal advice beyond the scope of this article. If you have questions about your personal situation, please contact us.