How To Reduce Roth IRA Conversion Taxes In 3 Steps

Roth IRAs (individual retirement accounts) are a great way to save for your golden years, but they can be a double-edged sword if you don’t possess the background to navigate the tax impacts or have a financial advisor in Texas that does. Read about the pros and cons of Roth IRAs.

If your goal is to transfer your traditional IRA into a Roth IRA without getting hit with high taxes, you need to know how much conversion will cost. Because the tax brackets are raised to keep up with inflation, you must plan with care. 

The great news is there are actions to take so you don’t get hammered with penalties and maintain more of your savings. Use this resource for tax planning in San Antonio, TX, as PAX Financial Group LLC.

The three main steps to reduce your ROTH IRA conversion taxes are:

  1. Stay ahead of tax changes
  2. Maximize your bracket
  3. Spread out your conversions

1. Stay ahead of tax changes

While the tax laws change frequently, which can make them feel complicated, it’s essential to keep up with them. The reason is that many people are unaware of the advantages or pitfalls they might face as things change. 

The IRS aims to remain one step ahead, so make sure you keep up! A financial advisor in San Antonio, TX, can do so on your behalf if your time, experience, and desires do not allow it.

Let’s be honest: The IRS is not here to tell you how much money you can save by understanding the nuances involved in taxes. However, if you’re proactive enough to educate yourself on these matters, you can make decisions based on current and upcoming tax changes.

If upcoming changes will adversely affect future taxes, it’s time to convert all or some of your traditional IRA in the year prior to the change. This can help you avoid paying more on the conversion than is required currently. 

2. Max out your bracket

It pays to know the bar you need to stay below. Tax brackets are based on income and how much you make in a year, so the more you earn, the higher your tax bracket will be (and the more money you’ll pay in taxes if subject to them). The opposite is true too: If your income is lower, chances are your tax bracket will be lower than those who make more money (which equates to paying less in taxes). 

To avoid jumping into a higher tax bracket, you can:

  • tax brackets listed on a piece of paperContribute to retirement plans
  • Avoid selling too many assets within the year
  • Time income and business expenses carefully
  • Pay deductibles and make contributions during high-income years
  • Use income averaging if you are a fisherman or farmer

If you are in a higher tax bracket, it may help to read: 5 Best High Net Worth Tax Planning Strategies.

3. Spread out your conversion

If you’re looking to reduce the taxes from your Roth IRA conversion, consider spreading out your conversion over multiple years. This will allow you to pay less in taxes each year, while reducing the impact of paying taxes on income that might be otherwise taxed at a higher rate.

One way is through a Roth IRA conversion ladder, which involves making small annual dollar-for-dollar contributions over several years, until you have contributed enough to fund an entire year’s worth of annual distributions (or the amount works best for your situation). 

This allows for more flexibility when deciding when or how much money should be withdrawn from the account later because there’s no single large withdrawal that would trigger higher taxes all at once.

Read about the Amount of Roth IRA Contributions That You Can Make for 2022.


Get prepared to pay taxes on Roth IRA conversions with the help of a professional.

Preparing for retirement is the key to a successful experienceThe first step in reducing your Roth IRA conversion taxes is to work with a fee-based financial advisor in San Antonio, TX, who honors your wealth goals first and foremost. This is how we do things at PAX as fiduciaries. We’re not just about tax planning; yes it’s important, but it’s only one aspect of comprehensive financial planning.

Roth IRA conversions are a long-term strategy that requires careful and deliberate thought. Why? Because the efforts now affect your financial reality, like how much you’ll be able to retire with. Our team understands this and will work closely with you to develop a plan that’s designed around your needs.

Work with a full team of passionate fiduciary CERTIFIED FINANCIAL PLANNERS™ at PAX

Discuss with us, the advantage of dollar cost averaging in the stock market when deciding whether or not to convert from a traditional IRA into a Roth IRA. This means investing a set amount every month rather than all at once. The result is greater diversification over time, so you’ll have less risk exposure if there’s any market volatility. 

Consider working with an advisor with extensive experience in tax planning for both traditional and Roth IRAs so that they can help you make informed decisions about how best to proceed with this process. We have a full team of passionate fiduciary CERTIFIED FINANCIAL PLANNERS™ at PAX. 

The Takeaway

If you aim to minimize taxes in retirement in Texas, give us a call!

Roth IRAs and traditional IRAs are two essential options for retirement savings, but they have different tax implications. The tax-free withdrawals from a Roth IRA can be extremely valuable—but you’ll need to pay taxes when you convert your traditional IRA into one. If you’re thinking about switching from a traditional IRA to a Roth, talk with an expert first, so we can help you make the right decision for your financial future!

Ready to convert to a ROTH IRA? PAX has the tax services to help you accomplish that task, so reach out to a wealth advisor in San Antonio today!

This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Biblically Responsible Investing(“BRI”) involves, among other things, screening for companies that fit within the goal of investing in companies aligned with biblical values. Such screens may serve to reduce the pool of high performing companies considered for investment. Investing involves risk. BRI investing does not guarantee a favorable investment outcome. PAX Financial Group has conducted due diligence for their Biblically Responsible Investing (BRI) process and proudly serves as each client’s advocate using fully vetted third-party specialists for the administration of BRI methodology. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product and should not be relied upon as such.

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