By Daniel Korleski, MBA
Are you looking for a way to reduce taxes in retirement? Consider Roth conversion benefits that may help you do just that.
By converting funds from a traditional IRA or 401(k) and paying taxes now, you can take advantage of Roth conversion benefits, including the potential for tax-free income in retirement.
But how do you know if this strategy aligns with your overall financial plan? At Cobalt Private Wealth, we’re here to help you evaluate every angle, so you can make confident, informed decisions.
We’ll walk you through the key differences between traditional and Roth IRAs, explain what’s involved in a conversion, and assess whether this approach supports your long-term goals. Let’s talk about how a Roth conversion could fit into your bigger retirement picture.
Traditional vs. Roth IRA
A traditional IRA provides a tax benefit on the front end, meaning qualifying individuals enjoy a benefit sooner rather than later. Contributions are made with pre-tax earned income. At tax time, the contributions made over the last year are fully or partially tax-deductible based on income and whether you or your spouse are participating in a work-sponsored retirement plan.
Here’s a breakdown based on tax filing status:
- Single: The tax deduction phases out for those who are covered by a workplace retirement plan and have an adjusted gross income ranging from $79,000 to $89,000.
- Single: The tax deduction is available for any amount of AGI if the taxpayer is single and not covered by a workplace retirement plan.
- Married: The tax deduction phases from $126,000 to $146,000 for the spouse making traditional IRA contributions with a work retirement plan.
The 2025 max annual contributions into a traditional IRA is $7,000 (or $8,000 for those over 50). A traditional IRA also comes with a required minimum distribution (RMD), beginning April 1 after your 73rd birthday. (Note: Under the SECURE 2.0 Act, that RMD age will rise to 75 in 2033.) Ignoring the RMD will land you a significant penalty fee.
Conversely, a Roth IRA provides a future tax benefit, once you’re ready to withdraw the funds. Roth IRA contributions are made with after-tax money you’ve earned through work. When it’s time to cash in, you will not be assessed any further taxes on the initial investment or the gains.
Unlike a traditional IRA, there are no RMDs associated with a Roth IRA. You may also withdraw contributions at any time, but be careful not to withdraw any of the gains before you’re 59½ years of age to avoid a 10% penalty fee.
Roth IRA Conversion & Taxes
A Roth IRA conversion is a tax strategy that normally involves converting tax-deferred savings (IRA, 401(k)) into a tax-free retirement account. In the case of a Roth IRA conversion, you’re ultimately deciding the future tax-free benefits of a Roth IRA are superior to paying the taxes now on pre-tax retirement money.
But how is that determined? A simplistic method may be to first consider your present tax bracket and whether you remain in this bracket (or ascend to a higher bracket) with the conversion. Then consider your potential bracket at and during retirement. If the current bracket is significantly lower than the future one, a conversion may make sense. If not or the brackets are equal, a conversion may not be advisable.
Could You Benefit From a Roth IRA Conversion?
If you currently have a traditional IRA and expect to be in a higher tax bracket when you begin withdrawing in retirement, a Roth conversion could be a strategic move.
Roth conversion benefits extend beyond tax savings; it can also play a key role in your retirement planning, investment strategy, and estate plan. That’s why it’s important to work with a financial advisor who understands how to align all aspects of your financial life.
At Cobalt Private Wealth, we can help you determine whether a Roth conversion suits your goals and walk you through every step of the process. Discover the potential Roth conversion benefits by reaching out to me at danielkorleski@cobaltprivatewealth.com or 719-332-3863 to schedule a meeting.
About Dan
Daniel Korleski is the President & CEO for Cobalt Private Wealth, where he helps his clients grow, manage, and protect their wealth so they can work toward a stronger financial future. With over 30 years of experience in the financial services industry, Dan has served as the managing director for Investment Trust Company, chief investment officer for the Wealth Management Group at American National Bank in Denver, and regional investment manager for the Greater Colorado Region of the Private Bank at Wells Fargo, where he oversaw the management of over $2 billion. In 2008, he was appointed by the mayor of Colorado Springs to the City’s Investment Advisory Committee. Dan holds an MBA in investment management from Midwestern State University in Wichita Falls, Texas, a Bachelor of Science in Finance from Florida State University, and is a member of both the CFA Society Colorado and The Financial Planning Association.
Dan loves to give of his time to his community and is currently serving as the Board Chair of Catholic Charities of Central Colorado and oversees the Homebound Ministry at St. Paul Catholic Church. He has also served as Chair of the Board of Trustees of Pikes Peak Hospice Foundation, President of the Broadmoor Rotary Club, and Vice President of the Board for the Pikes Peak Chapter of Trout Unlimited. Dan was born and raised in Spain and is fluent in Spanish. To learn more about Dan, connect with him on LinkedIn.
