ROTH Conversion PROS and CONS

Want to know the PROS and CONS of doing a ROTH conversion?
Atty. Chris Berry discusses the ROTH Conversion PROS and CONS in this episode of Daily Wisdom.

Watch the full Wisdom Webinar for a more in-depth discussion here:

Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via thisĀ linkĀ or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

Castle Wealth Group helps families with their legal, financial, and tax planning for their retirement and legacy.

With the use of legal structures like revocable living trusts, Castle Trusts (asset protection trusts), Chris Berry and Castle Wealth Group can help your family plan, protect, and preserve what is important through their Retirement and Legacy Blueprint Process.


For more info visit:


Episode Transcript

Pros and Cons

First reason why I would say one of the pros of looking at a strategy and not just Roth conversions, there’s other strategies out there. But I think of this as just getting more tax efficient. Another reason why to consider a Roth conversion, to pay the tax now so that your beneficiaries don’t get clobbered in income tax, based on the secure act. What’s the big benefit of paying the tax or doing a Roth conversion or getting tax efficient? At the end of the day, it’s just flat out paying less tax. Now you need to consider that it’s kind of ripping off a band-aid, so to speak. It hurts when you do it, but after that you’re free. So I guess what would be a con of doing this is, you pay the tax upfront. I’m not sure if that’s necessarily a con, but people always look at taxes through this micro lens of minimizing taxes on a specific year.

Well guess what? We’re going to raise your taxes on a specific year to minimize taxes for the rest of your retirement. So one downside is, yes, you have to rip off the band-aid and yes, you have to pay tax now. Well, that tax you pay now might be $20,000. Versus if you continue to defer the tax you pay over the lifetime of that account, could easily be 50,000 or a $100,000 on that same account. Now, another con of doing a Roth conversion or moving money out of the tax deferred accounts to somewhere tax-free or taxable, is that it can affect your social security.


Social Security

But if you’re already making more than $44,000, your social security is already getting taxed. So if you already have more than $44,000 worth of income, it doesn’t affect your social security any differently because your social security is already getting taxed. 85% of your social security is added onto your income. So it does not affect your social security if you’re already making over 44,000. What it does affect in the year that you move the money, the year that you move the money, it does affect your Medicare premiums. And actually it’s a two year lag. So if you were to have done conversions or move money out of the tax deferred accounts in 2018, you’re going to see that your Medicare premiums might be a extra couple of 100 dollars higher, depending on how much you converted, just for this year. And then if we move forward, it’s going to drop back down to whatever it was, pre conversion.

So in the year you do the moving the money out of the IRA, like a Roth conversion, you’re going to see two years in the future, your Medicare premiums will be higher for that year. But I’ll argue and we can run the math for you, depending on your situation, but the tax savings and the peace of mind in knowing that if taxes go up, you’ve already removed this money from the tax train that’s coming down the tracks, that’s going to far outweigh, potentially, the additional Medicare premiums you might be paying. The other con that I hear sometimes is that, well, if you move the money to the Roth, you’re supposed to leave it there for five years. Which is true. So to get the tax growth, to get that tax-free, because again, that’s the benefit, is now this money is tax-free. Tax-free for your retirement. Tax-free for what you leave to your kids.

But for the growth to be tax-free, you’re supposed to leave it there for five years. Which a lot of people bring this up as a downside of the Roth but in reality, the Roth, because you want to take advantage of this tax-free growth, you want it accumulating growth in a tax-free manner. Typically, the Roth is going to be the last of the money that you’re going to touch because we want it to continue to grow tax-free. So I don’t see the five-year rule of taking money out of the Roth as really being an issue.


Castle Wealth Group Legal in Media

Send Us a Message