Roth IRA Conversion

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In this segment, John Bowens, Equity Trust Retail Sales Manager and Educational Speaker, walks through Roth IRA Conversions.

He explains the concept of converting cash or assets from a tax-deferred account to a tax-free Roth IRA through a whiteboard example.

What is a Roth conversion?
It's taking tax-deferred money and converting it to a Roth IRA. You're paying taxes on the seed rather than paying taxes on the crop.

Some individuals have been told that they don't qualify for a Roth because they make too much money, so this is where a Roth conversion strategy can be helpful for an investor who's a high-income earner.

Some people refer to this as a Backdoor Roth Conversion.

We'd encourage that you speak to a financial professional to determine if a conversion makes sense for you or not.

Real World Example:
A couple, in 2010, opened Traditional IRAs with ETC, funded them with 401k rollovers, and they converted each IRA into a Roth IRA.

At the time of the conversion it was about $100,000, so they paid taxes on that. They each bought a rental property with each Roth IRA, generated cash flow, took the rental returns and reinvested.

Everything went back into the Roth IRA. Fast forward 10 years later, they have 13 rental properties and have over a million dollars and tax-free profits. This is the power of compound interest in the absence of taxation.

So this couple decided to pay the taxes on the $100,000 ten years ago, rather than paying taxes on over $1 million today.

John Bowens walks through a whiteboard example that individuals can use to help them determine if it would be potentially more beneficial to convert to a Roth IRA, or not to convert to a Roth IRA.

The example explained is a hypothetical. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal.

Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional to determine whether an investment product, plan or strategy is right for you. Investing involves risk, including possible loss of principal