This Tax-Slashing Move Is Now More Valuable for Couples

A senior couple enjoys their retirement savings
Photo by Ruslan Guzov / Shutterstock.com

Last year’s tax reform legislation has lowered many folks’ federal income tax rates, which effectively makes Roth IRA conversions cheaper for many of those seeking to limit their taxes in retirement.

This is especially true for married couples, though, as CNBC reported recently. The new federal tax brackets “are more favorable for married people,” says Robert S. Keebler, a certified public accountant with the tax and accounting firm Keebler & Associates in Green Bay, Wisconsin.

For that reason, Keebler argues couples should convert traditional IRAs to Roth IRAs while both spouses are alive, CNBC reports.

What is a Roth IRA conversion?

When you contribute to a traditional IRA, you’re not taxed on the cash that goes into the account. Instead, money in a traditional IRA account — both your original contribution and the earnings it generates — is taxable later, in the tax year during which you withdraw money from the account.

By contrast, money you deposit in a Roth account is taxed in the tax year during which you deposit the money. So, if you follow the IRS rules for retirement account withdrawals, you get to withdraw contributions and earnings tax-free. That fact makes Roth accounts attractive to folks seeking to avoid taxation in retirement.

When you convert a traditional IRA to a Roth IRA, you pay income taxes on the converted money in the tax year during which you made the conversion. But the process ensures you will not be taxed on that money when you withdraw it in retirement — assuming you follow IRS rules for withdrawals.

How tax reform affected Roth conversions

If you convert money in a traditional account to a Roth account, the tax rate you pay on that money is the same as your federal income tax rate at the time of the conversion.

With tax rates now lower for many people and the new tax brackets also more favorable to couples, many Roth conversions will be subject to lower tax rates.

You can view what your 2017 tax rate was and what your 2018 tax rate will be on the IRS website.

Your 2017 tax return was the last one subject to the old tax rates. Your 2018 return — the one due by April 2019 — is the first that will be subject to the new rates created by tax reform.

Is a Roth IRA conversion right for you?

An IRA conversion isn’t right for everyone — or even for every married couple.

Determining whether one is right for you depends on more factors than just your new federal income tax rate. For example, you must also consider how your current tax rate compares with the tax rate you likely can expect in retirement.

There are also income restrictions: If your income is more than a set amount, you can’t do a conversion. For example, a married couple filing a joint tax return currently must have a taxable income of less than $199,000 to convert money in a traditional IRA to a Roth IRA, and reductions begin at $189,000.

So, consider consulting a good financial adviser or accountant.

Additionally, the Tax Cuts and Jobs Act of 2017 repealed the ability to “recharacterize” a converted Roth account. As we detail in “Tax Overhaul Tweaks Some Rules for Retirement Accounts,” that effectively means that if you convert a traditional IRA to a Roth IRA, you will no longer have the option to undo the conversion. You’re stuck with the Roth.

Have you considered converting any retirement accounts after tax reform? Share your thoughts below or on Money Talks News’ Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Reasons You Should Consider a Career Change at 50
7 Reasons You Should Consider a Career Change at 50

Wondering how to change careers at 50, or if it’s possible at all? The good news is that many older workers have the energy and experience to pull it off.

How Much of My Social Security Can My Ex Take?
How Much of My Social Security Can My Ex Take?

A man wonders if his ex-wife will siphon away his Social Security benefit.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

This Is the Best Online Savings Account for 2021
This Is the Best Online Savings Account for 2021

The rate of return is just one of several reasons this account stands out.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

9 Shopping Mistakes to Avoid at Costco
9 Shopping Mistakes to Avoid at Costco

Are you missing out on serious savings at your favorite warehouse club?

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

The 16 Cars Most Likely to Last 200,000 Miles
The 16 Cars Most Likely to Last 200,000 Miles

One automaker takes half the spots on a list of the longest-lasting vehicles.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

This Is the Most Dependable Car Brand in the U.S.
This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

Homeowners Say These 2 Kitchen Appliance Brands Are Best
Homeowners Say These 2 Kitchen Appliance Brands Are Best

One brand takes five of the top honors, while another ranks highest in three categories.

The 10 Worst States for Retirees in 2021
The 10 Worst States for Retirees in 2021

Based on factors like affordability, quality of life and health care, these are not ideal places to spend retirement.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.