Rangkuman Berita: Is Converting 10% of Your 401(k) to a Roth IRA Annually a Smart Move?

Cathy is considering converting her 401(k) into an IRA and then a Roth IRA by 10% per year to avoid claiming too much income each year and to minimize Required Minimum Distributions (RMDs). This strategy can potentially reduce lifetime tax liability, increase retirement success odds, and provide more flexibility. However, converting 10% per year may not be the best approach, and it's essential to compare current and future tax rates. Roth conversions can have significant impacts due to various tax code variables, such as increasing the amount of Social Security income that’s taxed or pushing capital gains into a higher tax bracket. The dollar amount of conversions matters more than the percentage, and it may be beneficial to convert different amounts each year based on individual circumstances. Using tax software or consulting a financial advisor can help make more informed decisions. It's important to consider the potential unintended consequences of Roth conversions, such as increased Medicare premiums or reduced health insurance subsidies. Cathy should carefully evaluate her situation and possibly seek professional advice to determine the best strategy for her. Overall, while Roth conversions offer many benefits, they require careful planning and consideration of various factors.