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Military Finances 201: Roth Conversions. 4 Things to Consider

Retirement Funding Taxes

Based on what some anticipate will happen in the election and resulting tax law changes, many are saying it may be a good time to do Roth Conversions and take advantage of our historically low marginal tax brackets. They might be right. But before you pull the trigger on the conversion here four are things to consider.

1. Where Will You Live in Retirement?

A lot of retired senior military officers and NCOs move to states with low or no income taxes during their ultimate retirement. You’ll want to consider how that might affect you. Typical state income taxes are around 5%. Do you really think your Federal income tax bracket in retirement will be 5% higher than it is now? It might be. Or it might not be. If you go from the 25% tax bracket to the 30% tax bracket that is a 20% increase in your Federal taxes. Do you think that will happen? You’ll need to make the assessment.

2. Where Are You a Resident of Now?

If you’re on Active Duty and claiming a no income tax state as your residence for taxes under the Servicemembers Civil Relief Act (SCRA), you have to ask the opposite question. When you need the funds in retirement, will you be in a state with an income tax? If you will, you might want to do a Roth conversion now.

3. Do You Have Non-Deductible Balances in Your IRA?

The tax bill might not be as bad if you have non-deductible balances in your IRA. You might also be able to “get rid” of your pre-tax balance by rolling it into an employer plan. If you do so correctly, there might not be any taxes on your conversion. Worth considering.

4. What is Your Income Now?

Tax rates may be at historic lows, but that doesn’t mean you’re at the lowest tax bracket in your “history”. When you retire, retire you may be in a lower tax bracket than you are now even if overall tax rates have gone up.

Military Finances are Different

While the concept of converting Traditional IRAs to Roth IRAs isn’t unique to the military there are some nuances to consider. In other scenarios the “nuances” can be significant. That is why we think you should work with a financial advisor that eats, sleeps and breathes military finances. If you’d like to chat with us about it, click on the button below to schedule a free initial consult or give us a call.


Watch Out for this Tax Tripwire


Roth vs. Traditional IRA: Which is Better for Military Officers?


Military Tax Benefit:  Rollover of SGLI Proceeds to a Roth IRA






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