Well... it turns out it's a little tricky. We were running numbers on a spreadsheet for a client (nerd alert) and ran into an issue with this move that we normally LOVE.

Here's the assumptions:

• Clients are currently in the 35% Federal tax bracket and CO tax income is 4.4% (2024).
• We wanted to convert all their pre-tax investments over the next 10-15 years. They will be in the 24% Federal bracket in retirement assuming rates do NOT change.

Conclusion: it would NOT make sense (on paper) to convert these assets with the given tax projections UNLESS the client paid for the taxes OUTSIDE of the retirement account. Meaning, the client would need to send in estimated payments to the Fed and State with funds held in savings, non-retirement account, etc.

You see, taking 39.4% from a conversion amount doesn't leave enough in the tax-free bucket at the end of the day. Now that we have the numbers, we can have a meaningful discussion about how to get the assets moved over, even if it's not 100% completed in 15 years. Something is better than nothing and the money NOT PAID TO THE IRS ends up being SUBSTANTIAL! 

Next up: Your 2024 WHITE HAWK WEALTH TAX GUIDE – 1^st Edition!

Disclosures

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.