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Retirement doesn’t always mean lower taxes. In fact, you may face your biggest tax bill in your 70s, when Social Security benefits and required minimum distributions (RMDs) begin.
However, there is a small, often overlooked window that can dramatically reduce future taxes. You can take advantage of this narrow period to move your money from a traditional retirement account to a Roth to save taxes.
The year between retirement and before Social Security benefits begin
The year you retire and before Social Security begins is the year that many retirees miss. This is the time when your taxable income is lowest and you have a lot of flexibility in making a Roth conversion. But many retirees notice this when it is too late.
“Roth conversions provide a great opportunity to pay taxes when it can be done at the lowest possible rates. The best window for this is for individuals who retire in their 60s and delay claiming their Social Security benefits until age 70,” said Wade Pfau, founder of Roth. retirement researcher. “This can create years of lower taxable income, open up the opportunity to engage in Roth conversions and be better prepared for when RMDs begin in the 70s.”
According to Matt Hyland, financial planner Arnold & Mote Wealth ManagementYou can optimize Roth conversions by scheduling conversions with the year depending on cash savings. “Many retirees go into retirement with large amounts of cash. Those who are comfortable spending their cash may be in a position to have little or no income with respect to the IRS and will have enough room in a lower tax bracket to do a Roth conversion,” he said.