I’m a CFP: 6 Reasons Now Is a Great Time To Change Your Retirement Accounts
Written by
Emily Fowler
Edited by
Ashley Barnett
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Though reevaluating your retirement accounts might not be high on your priority list, now is the perfect time to make changes. With current tax laws and economic conditions creating unique opportunities, the changes you make today could be great for your financial future.
According to two financial experts, there are six reasons why you should consider changing your accounts.
Historically Low Tax Rates
“Now is an ideal time to consider changing retirement accounts due to the historically low tax rates currently in place,” said Joseph A. Catanzaro, CFP®, Financial Advisor at Oak & Stone Capital Advisors. “They not only provide individuals with more disposable income, increasing consumer spending and investment but also create a unique opportunity to optimize retirement savings.”
Legislative Changes and Impending Tax Increases
Legislative changes aimed at stimulating economic growth and recovery have helped significantly reduce tax rates, and it’s important to take action before rates increase.
The Tax Cuts and Jobs Act 2017, for example, is set to sunset in 2025, meaning likely changes including increases in tax liability for both individuals and corporations.
Tax-Free Growth and Withdrawals with Roth Accounts
Roth IRAs and Roth 401ks, unlike traditional retirement accounts, offer tax-free growth and tax-free withdrawals in retirement, allowing you to maximize your savings without future tax liabilities.
“By transitioning to a Roth IRA or converting traditional IRA funds now, investors can take advantage of these favorable tax rates. This move could potentially lead to substantial long-term savings and protect retirement funds from future tax hikes,” Cantazaro said.
Long-Term Financial Security
Retirement planning means looking ahead at future expenses and tax liabilities, which often means revisiting your goals and regularly monitoring your progress.
According to Russell E. Gaiser III, Co-Founder and Retirement Income Planner at Income Plan HQ in New York, it’s important not to leave this too late. “As you get closer to your anticipated retirement date, it’s crucial to have a thorough understanding of your ideal and likely expenses to live the life you want (and an estimate as to how long that needs to last),” he said.
Strategic Tax Planning
Tax planning in retirement is essential for keeping more of your hard-earned money. Just as you want to be smart about being taxed on your current income, knowing how your retirement income will be taxed lets you make the best choices about withdrawals and investments. By planning ahead, you can cut your tax bill, boost your savings, and dodge any nasty tax surprises, setting yourself up for a worry-free and financially secure retirement.
“When you know your retirement expenses, you need to understand how the money you will be using is taxed and “gross up” the amount you need to draw to account for the taxes that are going to be due on those distributions,” Gaiser said.
Plus, if you’re saving in a Roth account, any portfolio gains achieved by market increases won’t be taxed in retirement.
Estate Planning Benefits
Roth accounts also provide significant estate planning benefits by allowing your heirs to inherit the accounts tax-free, ensuring they receive the full value. Unlike traditional IRAs, Roth IRAs don’t require mandatory withdrawals during your lifetime, allowing your investments to grow untouched. Planning your estate now ensures you maximize these tax benefits, giving you peace of mind and setting your heirs up for a more secure financial future.
More From GOBankingRates
