Roth Conversions: A Legal Get-Rich Scheme

By R. Kenner French

The COVID-19 pandemic has shaken up nearly every aspect of American life. To say it’s been a difficult time would be a massive understatement.

However, difficult times may open doors to new possibilities. Businesses are changing their ways of operating, and individuals are exploring new avenues for investment. It may be time for you to consider some opportunities, as well.

What is a Roth Conversion? A Roth conversion refers to the transfer of an Individual Retirement Account (IRA), either Traditional, SIMPLE, or SEP-IRA, into a Roth IRA. With Roth IRAs, you pay tax on the money before it transfers into the account.

One benefit to having your money in the Roth IRA is that, unlike a Traditional IRA, you currently are not obligated to take Required Minimum Distributions (RMDs) after you reach age 72 (RMDs would be required to any non-spousal beneficiaries, however).

Another benefit is that since the money was taxed before going into the Roth IRA, any distributions are tax-free. Yep, tax free. Keep in mind that tax rules are constantly changing, and there is no guarantee that Roth IRA distributions will remain tax-free.

Why go Roth in 2022? In the face of the market downturn after the COVID-19 outbreak and war in Ukraine, you may be in a unique financial situation. For example, suppose you have an IRA account that was worth $1 million before the downturn, but it’s currently worth $800,000.