roth-irajpg-2b7e85d3d014e78f_medium“Is it better to save for retirement in a Roth IRA or a traditional IRA?” asks Robert Berger in a comprehensive usnews.com piece. In the second of two blogs drawn from Berger’s superb piece, he considers…

“The Roth conversion. The availability of Roth conversions offers significant flexibility in retirement planning. For example, many workers are in high tax brackets during their working years that make Roth contributions or conversions untenable. However, these same workers may find themselves in much lower tax brackets during their early years of retirement.

“For example, retirees in their 60s may hold off on collecting Social Security and use taxable accounts to fund retirement. At the same time, required minimum distributions have yet to kick in. During these low tax years, a Roth IRA conversion of some pre-tax retirement savings may be beneficial. In addition to converting retirement accounts at lower tax rates, these retirees can further lower their taxes in later years by reducing the required minimum distribution from their remaining pre-tax retirement accounts.

“Required minimum distributions. Reducing the required minimumdistribution by converting pre-tax funds to a Roth account is a double-edged sword. On the one hand, a small RMD can lower a retiree’s marginal and effective tax rates. At the same time, it can make earlier Roth IRA conversions less appealing for the very same reason.

“Therefore, it is important to consult with a Roth IRA conversion specialist to understand the best strategy. They will often use sophisticated modeling software to help determine your best strategy.”