June 25, 2020

In March of this year, the 2020 tax filing deadline was extended to July 15th. Since that announcement, we have been fielding many questions regarding how this will affect clients planning to make individual retirement account (IRA) or Roth IRA contributions.

A question often posed is… “what are the benefits of a Roth IRA account?” As planners, we often navigate, with our clients, the various outcomes that can arise when making Roth contributions and/ or Roth conversions. This is especially true regarding the alternative approaches that can be incorporated within their unique financial planning needs.

The combination of the SECURE Act and CARES Act have significantly changed the landscape of how individuals can manage their IRAs. In a previous piece, we discussed a provision within the CARES Act that suspends Required Minimum Distributions for 2020.[1]

How might these Acts may affect you?

  • Extension of tax filing deadlines and contribution deadlines to July 15th, 2020
  • You still have time to make a 2019 contribution
  • Extra time for both IRA and Roth IRA contributions due to CARES Act
  • Contribution limits: $6,000 under 50, $7,000 for ages 50+
  • No age limit to an IRA Contribution*[2]
  • If you were in RMD status (meaning you have reached the age of 70.5 by the end of 2019), you have the option to suspend your required minimum distribution
  • Normally RMDs CANNOT be converted, BUT due to suspension of these required distributions, you can convert ANY distributions from your retirement accounts (403(b), 401(k), IRA)

Keeping all of these changes in mind… this might be an opportunity to consider making a Roth conversion**

What exactly is a Roth conversion? A Roth conversion refers to taking all or part of the balance within an existing traditional IRA and transferring it into a Roth IRA. Highlighted below are key points of interest to think about when deciding if a Roth conversion is right for you.

Considerations to explore with your advisor…

  • SECURE Act limitations on Stretch IRAs[3]
  • Paying taxes now to avoid paying them later
  • Potential to lower your future RMDs
  • Potential to lower future income tax bracket

For more information please contact your Atlas Wealth Management Advisor and stay tuned for our Roth Conversions webinar coming this summer.

Robert Palmer, CFP®, RICP®

Director of Financial Planning

* Must have earned income to make a contribution

**Could impact Medicare premiums and the taxable portion of Social Security Benefits

[1] P.L. 116-136. Sec. 2203

[2] (Sec. 107) The prohibition on contributions to a traditional individual retirement account (IRA) by an individual who has reached age 70-1/2 is repealed.

[3] (Sec. 401) The bill modifies required minimum distribution rules with respect to defined contribution plans and IRA balances upon the death of the account holder. All distributions must be made by the end of the 10th year after death, except for distributions made to certain eligible designated beneficiaries.

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