Consider converting your carefully-saved retirement money into a Roth IRA, our columnist writes.
Millions of Americans have tax-deferred accounts, pundits laud them, companies help fund them, institutions service them and markets help them grow. But when it comes time to empty them, often the only person to guide us is Uncle Sam, who’s patiently awaiting his cut.
Yet deferring may not be right for everyone. There are some widely discussed reasons to make earlier and larger withdrawals from tax-deferred accounts—to convert this money to a Roth IRA, to avoid future tax rate increases, to use the money while still young and healthy, and to reduce future RMDs by making withdrawals earlier in our 60s, when we might be in a lower tax bracket.
What’s the problem? First, the standard deduction for the surviving spouse will typically decline from $24,400, the 2019 level for those married filing jointly, to $12,200 for a single individual. In addition, the surviving spouse will lose the additional “over age 65” deduction of $1,300 for the deceased spouse.
Married couples with annual incomes around $40,000 to $80,000, or above $160,000, are likely to get hit with significantly higher tax rates upon the first spouse’s death. Today’s tax rates are unusually low. That means the tax penalty could be even higher, depending on the results of 2020s election. It could also be higher after 2025, when today’s low tax rates are slated to return to pre-2018’s higher levels.
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