Time is running out: Is a Roth IRA conversion right for you in 2024?

There is still time to decide whether to do a Roth IRA conversion in 2024 to realize income for this tax year.

This strategy may make sense for those who are in a lower tax bracket this year or who believe taxes will increase in the future.

Another consideration is tax diversification. Having a mix of retirement savings, in the form of traditional pre-tax assets and Roth assets, may help individuals manage taxes when withdrawing funds in retirement. For instance, if you are in a lower tax bracket in a particular year, consider withdrawing more funds from a traditional IRA. Conversely, if you are in a higher tax bracket a particular year, consider withdrawing from a tax-free Roth IRA.

For those considering a conversion, an important first step is to determine, based on projected income for 2024, your marginal tax bracket. This can provide clarity on the tax “cost” of generating additional income before the end of the year. See our recent post, “Act before year end to manage your tax bill.”

Does a Roth conversion make sense before the end of the year? Considerations

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Notes: Those at higher income levels enrolling in Medicare may be subject to higher Part B and Part D premiums due to the Income Related Monthly Adjustment Amount (IRMAA). The Social Security Administration considers your tax return from two years prior to determine if a higher premium applies. Consult “Medicare and You,” for more information.

The Free Application for Federal Student Aid (FAFSA) uses income information from two years prior as part of the income test in calculating student aid.

Seek professional assistance

Voluntarily adding additional income by converting traditional retirement assets to a Roth requires careful thought and analysis. In particular, since 2018, taxpayers are no longer able to recharacterize (undo) a Roth conversion. Lastly, it’s important to understand the rules for tax-free withdrawals from a Roth (referred to as “qualified distributions”) that include a five-year holding period and one of several other requirements (for example, attaining age 59?). Consulting with an advisor and tax professional is critical.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.

Franklin Templeton, its affiliated companies, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

The opinions expressed here are my own and not those of Franklin Templeton and are not intended as tax, legal, or investment advice.?Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Franklin fund or product, visit franklintempleton.com?or call your financial representative, or call Franklin at (800) DIAL BEN/342-5236. Please read the prospectus carefully before investing.

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