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What Planning Can Help You Achieve in the New Year

Wouldn't it be nice to pay fewer income taxes in retirement? A tax-advantaged strategy called a Roth IRA conversion may lower your taxable income later in retirement. A Roth IRA conversion involves repositioning a traditional IRA or qualified employer-sponsored retirement plan assets into a Roth IRA. There are a few Regardless of your goals, planning at the beginning of the New Year can prepare you to work toward achieving them. One of the most significant benefits of planning is that it gives you the confidence to stay on track toward your goals or make changes to pursue them throughout the year.

To get started, examine your current financial situation by assessing your budget, debt management, savings, retirement savings, and insurance. Next, work toward more complex areas, such as your will and estate plan. As you start planning, your marital status, assets, income, health, financial literacy, employee benefits, number of children, and future retirement income must all be factored into your plan. While having a plan can't guarantee protection from unexpected life events, it can help you create the groundwork to achieve these eight things in the New Year:

1. Establishing an emergency fund- An emergency fund is money saved in an account to use during financial stress to help improve economic security.

2. Creating a budget- A budget estimates income and expenses for a period, such as a month.

3. Reducing debt- Whether you owe a few thousand or hundreds of thousands of dollars, paying off debt can lead to less financial stress and more financial security.

4. Saving money- Saving money can help prepare you for future goals and expenses and help protect you from financial emergencies.

5. Improving your tax situation- A plan can help illustrate how tax-advantaged investment strategies may reduce your tax bill.

6. Saving for retirement- A financial plan can help illustrate retirement savings projections based on an assumed rate of return to help you determine if you are on track or need to revise your plan.

7. Saving for your child or grandchild's education- Including education savings in your financial plan can help you estimate how much you need to save to reach your education funding goal.

8. Saving for other financial goals- Whatever your goals are, a plan can help you work towards having the finances to achieve it.

A financial professional can help guide you through the planning process by providing recommendations in several areas of your financial life. While every financial professional has their unique strengths and specialties, they can also help you:

· Determine if you're on track with your goals.

· Provide a second opinion.

· Evaluate your investment strategies and implement new strategies.

· Assess your risk tolerance and time horizon to align with your goals.

· Rebalance your portfolio.

· Manage roadblocks impacting your finances- job loss, divorce, etc.

Now that you know the eight things planning can help you achieve, take the next step and schedule a New Year’s planning meeting with a financial professional today. Reasons why investors may pursue a Roth IRA conversion strategy:

· A Roth provides the flexibility to withdraw money when needed.

· There is no Required Minimum Distribution (RMD).

· A Roth IRA conversion as part of estate planning may help lessen the impact of estate taxes on an estate.

Before initiating a Roth IRA conversation strategy, here are things to consider before making your decision:

#1- You will have to pay taxes. Since traditional IRAs and other qualified retirement plans are tax-deferred, upon converting assets into a Roth IRA, the account owner must pay income tax on the amount they convert. Also, the taxes are due upfront when the conversion occurs.

#2- Your Adjusted Gross Income (AGI) may increase. A Roth IRA conversion will increase your income in the year that the conversion happens. Increasing your AGI may also impact your income tax as you move into another income tax bracket.

If you are retired, be mindful that Medicare Part B uses your two previous years' income to calculate your monthly premium, and the conversion may increase your Part B payment for at least two years.

#3- You may lose eligibility for specific tax write-offs. The child tax credit and student loan interest deduction are based on personal income, and initiating a Roth IRA conversion may mean you lose these deductions if your AGI increases.

#4- You may pay a penalty if you need the money within five years. Roth IRAs typically offer penalty and tax-free withdrawals anytime on contributions. Still, investors must wait five years to withdraw the funds without a 10% penalty when using conversion monies, regardless of age. If you anticipate needing money from your Roth IRA before the five-year rule sunsets, there may be a more appropriate strategy for you.

#5- Your qualified retirement plan may not allow Roth IRA conversions. If you have your retirement savings inside your employer's retirement savings plan, check the plan's documents to see if a Roth IRA conversion is allowed. If not allowed and you initiate the conversion, the conversion may not occur, or a penalty will be applied when the conversion happens. Consult your employee handbook, human resources professional, or employer-sponsored retirement plan's custodian for answers about your situation.

You need to meet with your financial and tax professionals to determine how a Roth IRA conversion may impact your taxes at tax time. While a Roth IRA conversion may interest you, be sure you understand the pros and cons of initiating this strategy.