It’s Tax Season! Time to Rethink Roths, IRAs, 401ks & Conversions

As we have discussed in a previous issue of E2E’s weekly newsletter, the current low income and capital tax rates are set to expire on December 31, 2025. Given the significant increase in the US deficit, the general consensus is that the tax rates will go up January 1, 2026.

What tax strategies have you looked at to minimize your taxes? I would make the argument that Roth IRAs, Roth 401k’s and Roth conversions should be top of your list.

The general Roth idea is pay taxes now (either as missing out of reducing income taxes now or in the case of a conversion paying income taxes now) in exchange for having your retirement accounts grow tax-free and being able to tax out withdrawals tax-free (rules apply). Pay lower tax rates now (current income and capital gains) and have withdrawals in the future, during potentially higher tax era, be tax-free. Tax-free is one of my favorite phrases. 😊

Contrary to popular belief NOT all Roth accounts have income limits! Roth 401ks and conversions are NOT limited by income. Roth IRAs are. (But there is a way around that: Backdoor Roth IRA)

If you haven’t explored tax planning with the various Roth options, reach out and let’s review your options and partner with your CPA to make your future more tax-free. (There I go again!)

Your weekly market update is here.

*Federal taxes; states may differ. This is not intended to be individual tax advice. Consult your tax professional. 1Income and other restrictions may apply to contributions. Tax penalties usually apply for early withdrawals. Qualified withdrawals are generally those taken over age 59½; qualification requirements for amounts converted to a Roth from a traditional account may differ; for some account types, such as Roth accounts, contributions that are withdrawn may be qualified. See IRS Publications 590 and 560 for more information. 2Withdrawals from after-tax 401(k) and non-deductible IRAs must be taken on a pro-rata basis including contributions and earnings growth. For non-deductible IRAs, all Traditional IRAs must be aggregated when calculating the amount of pro-rata contributions and earnings growth. 3There are eligibility requirements. Qualified medical expenses include items such as prescriptions, teeth cleaning and eyeglasses and contacts for a medical reason. Cosmetic procedures, such as teeth whitening, and general health improvement, such as gym memberships and vitamins, are not qualified expenses. A 20% tax penalty applies on non-qualified distributions prior to age 65. After age 65, taxes must be paid on non-qualified distributions. See IRS Publication 502 for details. Source: J.P. Morgan Asset Management.

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