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Question of the Month

September 21, 2020


“Hello, Todd.  My wife and I are 65 years old and still working.  We plan to retire in a few years.  Until then, we are saving money for retirement.  One way we save is by contributing to our Roth IRAs each year, maximizing them out at $7,000 apiece.  We are also trying to become more tax efficient because we believe tax rates will be much higher in the future.  We are considering doing a Roth conversion this year.  However, we are afraid that if we do a Roth conversion, then we will not be eligible to make our Roth contributions.  Will that happen? Thank you.”  Chris and Lori


This is a great question, especially for those who are trying to maximize their retirement savings while getting more tax efficient.  There are two ways to get money into your Roth IRA: Roth contributions and Roth conversions.  


Let’s start with Roth contributions.  To be eligible to contribute to a Roth IRA, you must have earned income and your modified adjusted gross income can’t exceed the annual phaseout threshold limits. The threshold limits vary depending on your filing status and the year because the Internal Revenue Service updates them each year for inflation. 


Now let’s look at conversions.  There are no qualifying rules for Roth conversions, so anyone is eligible to do them in any amount as often as they like.  Even though Roth conversions count as taxable income, they are not included in your modified adjusted gross income.  The IRS makes a special tweak in the Modified Adjusted Gross Income Formula that takes out any income from a Roth IRA conversion.  So, for example, let’s say you do a $100,000 Roth conversion this year, and your combined gross income from work is $150,000.  When you figure your modified adjusted gross income, you take out that $100,000, so your modified adjusted gross income stays at $150,000, and you are still eligible then to contribute to Roth IRAs.


So the good news is that if you are otherwise eligible to contribute to Roth IRAs, then any Roth conversions you do in the same year will not change that eligibility.  That of course is a big help for people who are trying to maximize their retirement savings while becoming much more tax efficient.  If you would like more information about this topic and answers to many more retirement planning-related questions, as well as details on all the updated rules, laws, and guidelines as they relate to planning your retirement, feel free to reach out to us at Heritage Solutions Group at 801-727-8780.

Investment Advisory Services offered through Brookstone Capital Management LLC, a Registered Investment Advisor. Investments and/or investment strategies involve risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. Content is provided by third parties for informational purposes only and is not a solicitation to buy or sell any products mentioned.

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Investment Advisory Services offered through Brookstone Capital Management LLC (BCM), a SEC Registered Investment Advisor.  Heritage Solutions Group and BCM are independent of each other.