IRA Conversion

Question:  Would you rather pay taxes on a little money or lot of money?
 
On a little money, of course!
 
If you currently own a 401k or IRA and have not begun your Required Minimum Distributions (RMDs) yet, there may still be time for you to potentially save yourself and your heirs hundreds, if not thousands, of dollars in taxes later.
 
You see, 401ks and IRAs are tax-deferred accounts, which enjoy the compounding growth effects without having to pay taxes on the earnings. However, when you reach the age of 70 ½ , the IRS mandates that you must begin taking minimum distributions. It is then that you must also pay ordinary income taxes on those distributions.
 
If you own a 401k or IRA, you are in partnership with Uncle Sam. While you’re alive, he owns 1/3 and you 2/3.  When you die, he may inherit up to 3/4 of your IRA/401k leaving your heirs 1/4.

While Uncle Sam may be a silent partner, he is NOT silent.

If you are under 59 ½, Uncle Sam wants you to not take withdrawals from the 401k or IRA. If you do, he can penalize you with a 10% fee plus pay his portion to him in taxes.

If you’re 70 ½ or older, Uncle Sam requires that you take required minimum distributions (RMD) that he has set out. If you do not or forget to, he’ll penalize you with a 50% fee of the amount you should have taken out, plus pay his portion to him in taxes.

When you die, Uncle Sam may require you to pay up to 75% in income and estate taxes on your 401k or IRA.

How does that make you feel?

 
You take all the risk, make all the decisions, manage it, obey the law, and yet, in the end, Uncle Sam stands to inherit most of your 401k or IRA.
 

What can you do to avoid having your 401k or IRA handcuff to Uncle Sam?

 
By Strategically Converting Your IRA/401k and Paying Him His Share Now, You Divorce Him as a Partner, and Therefore, Eliminate Any Stiff Penalties and Big Taxes Later.
 

It’s like paying off a nasty business partner so that you can move on and build a larger, more successful business without him looking over your shoulder every day. 

 
What do you do with the converted money?
 

To effectively convert your 401k or IRA, it is best to convert it over a period of 5-7 years. Therefore, you could spread the taxes paid to Uncle Sam over a period of time, instead of in a lump sum.

After your 401k or IRA has been converted, it needs to be repositioned into a vehicle that will help you build your wealth in a preferably tax-favored manner.

 
The vehicle of choice would
protect your principal,
allow your money to grow tax-deferred,
be distributed income tax-free,
and upon your death,
be transferred tax-free to your heirs.
 

 If you do not plan to spend your 401k or IRA during your lifetime, intentionally converting it may save you and your heirs hundreds and thousands of dollars in taxes. To see how this technique may benefit you, click here to request a customized Intentional 401k/IRA Conversion analysis today. 

NOTE:  It is important to consult a competent financial advisor, accountant or tax attorney before attempting to do any IRA conversion as there are tax consequences. A IRA Conversion may not be appropriate for everyone.

 

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