Understanding Roth IRA Conversion Opportunities in 2025: My Advice for Smart Investors

You're not alone if you're considering converting your Traditional IRA to a Roth IRA. Many investors I work with at Duncan Williams Asset Management are asking the same question: "Is now the right time to convert?"

The short answer? It depends on your tax situation, income expectations, and long-term financial goals. Let me walk you through the key benefits, the potential tax consequences, and how to decide whether a conversion makes sense for you.

Why Consider a Roth IRA Conversion?

Converting to a Roth IRA means taking money from a Traditional IRA, SEP IRA, or SIMPLE IRA and moving it into a Roth IRA. The catch? You'll owe taxes on the amount converted. But in return, you get:

1. Tax-Free Growth & Withdrawals

• Unlike a Traditional IRA, which requires you to pay taxes when you withdraw money in retirement, a Roth IRA allows your money to grow and be withdrawn tax-free—provided you follow the rules.

• Locking in today's lower tax rates might make sense if you expect to be in a higher tax bracket later.

2. No Required Minimum Distributions (RMDs)

• Traditional IRAs force you to withdraw funds at age 73, whether you need the money or not. A Roth IRA has no RMDs, giving you control over how and when you use your retirement funds.

3. A Hedge Against Future Tax Increases

• Tax rates are historically low due to the Tax Cuts and Jobs Act (TCJA). But that expires at the end of 2025, and if rates go up in 2026, Roth IRA withdrawals will look even more attractive.

4. A Tax-Free Inheritance for Your Heirs

• If you plan to leave wealth to your children or grandchildren, a Roth IRA lets you pass those assets on tax-free. Unlike a Traditional IRA, which forces them to pay taxes on withdrawals, a Roth can be a powerful estate planning tool.

The Tax Bill: What You Need to Know

The biggest downside to a Roth conversion is the tax hit. Here's what you need to keep in mind:

• The amount you convert is added to your taxable income, which could raise your tax bracket for the year.
• Medicare premiums could increase. Higher taxable income could mean higher Medicare costs down the road.
• State taxes may apply. Some states tax IRA conversions, while others don't.

One key rule: Conversions can't be undone. Before 2018, you could "recharacterize" a conversion if the tax bill was too high. Not anymore. Once you convert, there's no going back. That's why thoughtful planning is critical.

When Should You Convert?

A Roth conversion isn't right for everyone, and timing is everything. Here are a few scenarios where a conversion makes sense:

§  During a Market Dip – Converting when the market is down means you're paying taxes on a lower account value, which could mean more tax-free growth in the future.

§  In a Low-Income Year – If you're between jobs, recently retired but not yet taking Social Security, or have a year with lower-than-normal income, converting can help fill up lower tax brackets without pushing you into a higher one.

§  Before Tax Rates Go Up in 2026 – With tax rates set to increase when the TCJA expires, 2025 may be the last great window to convert under today's lower tax brackets.

My Strategy for a Smart Conversion

When I advise clients on Roth conversions, I emphasize tax efficiency. Here's what I recommend:

1. Do Partial Conversions

• Instead of converting everything at once, spread the conversions over multiple years to stay in a lower tax bracket.

2. Use Tax Bracket Management

• Convert just enough to stay within your current tax bracket—for example, if you're in the 24% bracket, don't convert so much that you jump into 32%.

3. Pay Taxes with Non-Retirement Funds

• Use cash from a taxable account to pay the tax bill instead of dipping into your IRA if possible. This preserves more of your retirement savings.

4. Take Advantage of Deductions

• If you have charitable donations, business losses, or large deductions, use them to offset the tax from your conversion.

Final Thoughts: Is a Roth Conversion Right for You?

A Roth IRA conversion can be a great strategy, but it's not a one-size-fits-all solution. If you're considering it, let's have a conversation. I can help you:

§  Analyze whether it makes sense based on your tax situation.

§  Develop a conversion strategy that minimizes your tax bill.

§  Ensure you're making the best long-term decision for your retirement.

Before making any moves, consult a tax professional. The IRS doesn't offer do-overs; the last thing you want is an unexpected tax bill. But done right, a Roth conversion can be one of the most intelligent financial decisions you'll ever make.

Let's talk about whether it's the right fit for you.

Disclosure

The information provided in this article is for educational and informational purposes only and should not be construed as personalized financial, tax, or investment advice. Converting a Traditional IRA to a Roth IRA is a complex financial decision that involves significant tax implications, and the suitability of such a strategy depends on individual circumstances.

Before making any decisions regarding a Roth IRA conversion, you should:

• Consult with a qualified financial advisor, tax professional, or legal expert to assess how a conversion fits within your overall financial plan.
• Consider the potential tax consequences, Medicare impacts, and estate planning factors associated with converting pre-tax retirement funds into a Roth IRA.
• Understand that tax laws are subject to change, and future legislative or regulatory developments may affect the benefits and drawbacks of a Roth IRA conversion.

This article includes references to tax laws, including the Tax Cuts and Jobs Act (TCJA), which is scheduled to sunset in 2025. The information presented is based on current law and interpretations as of 2025, and changes in tax policy may impact future tax rates and retirement planning strategies.

Investment and retirement decisions carry risks, including market fluctuations and potential changes in economic conditions. Duncan Williams Asset Management (DWAM) does not provide tax or legal advice. Any tax-related information in this article is provided for general guidance and should not be relied upon for tax filing purposes.

Securities and investment advisory services are offered through Duncan Williams Asset Management, an SEC-registered investment advisor. Registration does not imply a certain level of skill or training. Past performance is not indicative of future results. All investments involve risk, including the potential loss of principal.

For personalized advice regarding your specific financial situation, please contact Duncan Williams Asset Managementor your personal financial advisor.

Sources & Further Reading:

1. Internal Revenue Service (IRS) - Roth IRA Rules

• www.irs.gov/retirement-plans/roth-iras

2. SEC Investor Education on Retirement Accounts

• www.sec.gov/investor-education

3. Tax Cuts and Jobs Act Overview - Tax Foundation

• www.taxfoundation.org

4. Social Security Administration - Medicare IRMAA

• www.ssa.gov/benefits/medicare/medicare-premiums.html

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