For many of us, it feels like a lifetime since 2017, but that’s when the current tax regulations were passed. What might be even harder to believe is that they’re due to sunset at the end of 2025. That’s only 2 ½ years from now.
As is stands, starting in 2026, there will be changes to: tax brackets, personal exemptions, the standard deduction, itemized deductions, mortgage interest deduction, and estate & gift taxes, just to name a few.
While there are many variables that go into filing taxes, it’s useful to know that in general, tax brackets are going up.
The projected shortfall in Social Security benefits, the rising national debt, and other substantial costs to the government make it hard to imagine taxes will be going down anytime soon. In fact, it’s not hard to imagine a future where taxes go higher still.
There’s no income or other restrictions on converting from a Traditional IRA to a Roth IRA, but the amount converted will be taxable.
So, if you think your tax bracket isn’t likely to be lower, and maybe your heirs won’t have a lower tax bracket either, maybe now is the time to consider a Roth conversion.
After 5 years and age 59 ½, everything in a Roth is available tax-free. And a Roth IRA can beneficial to your heirs from a tax perspective as well.
A Traditional IRA left to a non-spouse must be fully distributed in 10 years after inheritance, with all funds taxable as ordinary income. That tax bill to your heirs can reduce your legacy goals substantially whereas an Inherited Roth IRA does not produce any taxation to your heirs at all.