Reasons to Consider Converting to a Roth

REASONS TO CONSIDER CONVERTING TO A ROTH The equity and fixed-income markets have been volatile this year. While volatility may offer an opportunity for upward movement, it can also deplete your portfolio balance. If you have a significant amount of your assets in traditional IRAs and retirement plans, you could also face more loss through taxation of your withdrawals. One way to reduce or eliminate your tax liability is by converting your traditional retirement savings to a Roth IRA. These accounts do not allow for pre-tax contributions. However, the earnings and withdrawals are tax-free, which could give you significantly more net spendable income in retirement. BFS2022RTCCR 1 [email protected] • www.bedrockfs.com • 800-779-4182

Table of Contents 3 Why Convert to a Roth IRA? 4 Current Low Tax Rate Environment 5 Compressed Federal Tax Brackets for Single Individuals 5 Post-Death Roth IRA Distributions for Beneficiaries 5 No Required Minimum Distributions with Roth IRAs 6 Reduction in Traditional IRA-Required Distributions 6 Reduced Conversion Taxes When “Paired” with Tax Deductions 6 Investors Can Pay the Conversion Tax with Outside Funds 7 Tax-Free Roth IRA Withdrawals 7 No Impact on the Taxation of Social Security Retirement Benefits 8 Have You Protected Your Retirement Income from Excessive Taxation?

Why Convert to a Roth IRA? There are many reasons to consider converting to a Roth IRA account. These can include: • Current low tax rate environment. • Compressed federal tax brackets for single individuals. • Post-death Roth IRA distributions for beneficiaries. • No required minimum distributions with Roth IRAs. • Reduction in traditional IRA required distributions. • Reduced conversion taxes when “paired” with tax deductions. • Investors can pay the conversion tax with outside funds. • Tax-free Roth IRA withdrawals. • No impact on the taxation of Social Security retirement benefits. BFS2022RTCCR 3 [email protected] • www.bedrockfs.com • 800-779-4182

Current Low Tax Rate Environment The Top Federal Income Tax Rates in the United States from 1913 to 2022 Income tax rates today are at historically low levels, with the top federal rate at just 37%. Between 1913 and 2022, this rate has been at or above 70% forty-nine times. Many economists believe that income tax rates will go up soon. Therefore, because a Roth IRA conversion is a taxable transaction, it could make sense to do so now before income tax rates increase. Source: Inside Gov Year Rate Year Rate 2018-2022 37% 1950 84.36% 2013-2017 39.6% 1948-1949 82.13% 2003-2012 35% 1946-1947 86.45% 2002 38.6% 1944-1945 94% 2001 39.1% 1942-1943 88% 1993-2000 39.6% 1941 81% 1991-1992 31% 1940 81.1% 1988-1990 28% 1936-1939 79% 1987 38.5% 1932-1935 63% 1982-1986 50% 1930-1931 25% 1981 69.125% 1929 24% 1971-1980 70% 1925-1928 25% 1970 71.75% 1924 46% 1969 77% 1923 43.5% 1968 75.25% 1922 58% 1965-1967 70% 1919-1921 73% 1964 77% 1918 77% 1954-1963 91% 1917 67% 1952-1953 92% 1916 15% 1951 91% 1913-1915 7% BFS2022RTCCR 4 [email protected] • www.bedrockfs.com • 800-779-4182

Compressed Federal Tax Brackets for Single Individuals Post-Death Roth IRA Distributions for Beneficiaries No Required Minimum Distributions with Roth IRAs Currently, federal tax brackets are very compressed for single individuals versus married couples who file their tax returns jointly. Roth IRA conversions may be wise while both spouses are alive and using the “married filing jointly” tax brackets. In this case, it is essential to consider income tax bracket management. If you have survivors who inherit your Roth IRA, they may also take distributions tax-free. This is the case regardless of whether the recipient is a spouse or non-spouse. However, non-spouse Roth IRA beneficiaries may have to take the required minimum distributions to avoid penalties. This benefit could be one of the most advantageous of converting a traditional IRA or retirement savings to a Roth. Unlike traditional IRAs and retirement accounts, Roth IRAs do not require you to start taking minimum distributions at age 72. So, your funds can continue to grow tax-free for many years. In addition, if you pass away and your surviving spouse inherits the Roth account, they may not have to take the required minimum distributions. It is important to note that non-spouse Roth IRA beneficiaries can make tax-free withdrawals. However, they must liquidate the entire account within ten years of the original account holder’s death. This is true regardless of the beneficiary’s age. BFS2022RTCCR 5 [email protected] • www.bedrockfs.com • 800-779-4182

Reduction in Traditional IRARequired Distributions Reduced Conversion Taxes When “Paired” with Tax Deductions Investors Can Pay the Conversion Tax with Outside Funds Reducing traditional IRA account balance by doing a Roth conversion can reduce the amount of traditional IRA required minimum distributions (RMDs) mandated by the IRS when the account holder turns 72. If a taxpayer has deductions like charitable contributions, net operating losses, or home business expenses, these could be “paired” with the tax that is due on the Roth IRA conversion. This is also true for those who have funded a charitable lead trust or a charitable remainder trust. In this case, the taxes owed and the tax deductions could cancel each other out. When processing a Roth IRA conversion, the taxes owed do not have to come from the IRA or retirement funds. Instead, investors can pay them with outside money. This means more funds can remain in the Roth account and generate tax-free earnings. BFS2022RTCCR 6 [email protected] • www.bedrockfs.com • 800-779-4182

Tax-Free Roth IRA Withdrawals No Impact on the Taxation of Social Security Retirement Benefits One of the most significant benefits of Roth IRAs is the tax-free withdrawal feature. While funds that go into Roth accounts are not tax deductible, the accounts’ earnings and withdrawals are tax-free. This is true regardless of what the then-current income tax rates are. If a surviving spouse inherits a Roth IRA from their deceased husband or wife, they may roll over the funds into their own Roth account and continue to generate tax-free earnings (and can also take taxfree withdrawals). Many people are unaware that up to 85% of their Social Security retirement income benefits may be taxable. The amount of taxable Social Security income is based on how much taxable income you generate from other sources. But income and withdrawals you take from a Roth IRA account will not impact this. Therefore, you can keep (and spend) more of the money you access from several of your retirement income sources. BFS2022RTCCR 7 [email protected] • www.bedrockfs.com • 800-779-4182

Because tax rates will likely rise in the future, it can make sense to move forward with a Roth IRA conversion. Roth accounts offer many enticing benefits, including tax-free earnings and withdrawals, and account beneficiaries’ ability to access funds free of taxation. Before starting the IRA conversion process, it makes sense to discuss your short- and long-term financial and retirement objectives with a specialist in this area. That way, they can assist you with ensuring that the process is appropriately completed and you obtain the most benefit. Ask a licensed financial professional about your individual situation. The information above is general and not a recommendation to buy or sell any security or insurance product. This cannot be considered investment, tax, or legal advice, nor is any offer being made to buy or sell any security or specific insurance product. Always consult your tax preparer for tax advice. Have You Protected Your Retirement Income from Excessive Taxation? 800-779-4182 BFS2022RTCCR 8 [email protected] • www.bedrockfs.com • 800-779-4182

BFS2022RTCCR 10 [email protected] • www.bedrockfs.com • 800-779-4182 Bedrock Financial Services [email protected] www.bedrockfs.com 800-779-4182

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