Roth IRA Conversion Strategy Software

Darcy Bergen

January 6, 2023


You have several options to convert your Traditional IRA to a Roth IRA. You can do it yourself, but some programs are available to help you. These programs will guide you through the process and give you a year-by-year projection table to see how much you’re saving.

No-tax backdoor Roth IRA conversion

Backdoor Roth IRA conversions can be an effective tax-saving strategy. However, this strategy can be a little complicated, especially for those who have both Traditional and Roth IRAs. To help simplify the process, you can seek the help of a tax professional.

A backdoor Roth IRA conversion involves taking money out of a Traditional IRA and converting it to a Roth IRA. This allows the money to grow tax-free and will prevent the Roth IRA from accumulating taxable earnings. The process requires a bit of fancy paperwork, but it can be done if you have the correct information.

To get started, you should fill out Form 8606 and add the balances of all your IRAs for the year. Once you have completed this step, you should contact your financial services firm and ask them if they can offer you a backdoor Roth IRA conversion.

Roll over some of your pre-tax IRA contributions into a Roth IRA, although you will need to wait at least five years before you can tap into the funds. You will have to keep records and file taxes on the conversion during that time. To make this strategy work, you must find a brokerage that can provide both IRAs.

Mega backdoor Roth IRA conversion

To benefit from the Mega-Backdoor Roth IRA strategy, you must have a 401(k) plan at work. You must also have the ability to make in-service distributions from your employer’s 401(k) plan. This means that you can put after-tax contributions into your account.

The total amount of your contributions, both post-tax and pre-tax, in your 401(k) plan will determine the taxes you pay for your backdoor Roth. Contact a financial consultant if you are unsure whether your 401(k) plan is eligible for the Backdoor Roth IRA conversion.

While the backdoor Roth is a sound tax-saving strategy, it is only for some. It can cause unnecessary complications to your income tax situation and increase your tax bill.

If you are uncomfortable making these contributions, consider opening a traditional IRA. Withdrawals from a traditional IRA can cause penalties. However, you will have access to matching benefits, so you can still save.

Software – Tax implications of converting a Traditional IRA to a Roth IRA

One of the most critical questions about converting a Traditional IRA to a Roth IRA is what tax implications there are. If you are considering a conversion, you should consult a tax advisor for specific answers.

The benefits of a Roth conversion include tax diversification in retirement years, no mandatory distribution schedule, and federally tax-free withdrawals. However, there are drawbacks as well. For example, you could end up paying more taxes on Social Security and Medicare benefits.

Moreover, you may have to pay the equivalent of a 10% early withdrawal penalty on funds withdrawn from your IRA. This is a problem, mainly if you have used your IRA to pay your taxes. To avoid this, taking some money out of your IRA before converting is best.

It is also a good idea to keep a record of your tax withholdings and estimated payments. This can be done by requesting your employer to withhold a portion of your paychecks for income tax purposes.

Software – NewRetirement Planner’s year-by-year projection table

NewRetirement Planner is a software tool designed to help you create an accurate plan for your future. It uses the most current federal government figures, including the Social Security wage limit, and allows you to create customized retirement accounts. Using this tool, you can see how your savings will grow, assess your conversion options, and test your strategies.

To begin creating your retirement plan, you first need to know your income, expenses, and other factors. Then you can use the calculator to see how much you’ll have to save for retirement.

Once you have these numbers, you can choose whether to account for inflation. Depending on your choice, the calculator will analyze your savings and recommend an appropriate amount to save. You can also set your values and run multiple scenarios.

Once you’ve entered all your information, the calculator will show you the estimated growth of your savings and provide a breakdown of your income and assets. You’ll see how your savings will grow over time and the probability that your investments will stay in the market.