01-19-25 ARI News AM

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Despite a favorable stock market year and stable tax rates, Roth conversions remain a popular strategy among retirees due to concerns about future tax liabilities from required minimum distributions (RMDs). Financial advice platforms have reported a significant rise in the use of Roth conversion calculators in 2024, driven primarily by retirees with large tax-deferred accounts. 

The desire to reduce future taxable income from RMDs, avoid Income-Related Monthly Adjustment Amount (IRMAA) surcharges on Medicare, and take advantage of lower current tax rates motivates conversions. Strategies include systematic large withdrawals and using charitable donations to offset tax burdens. Even with potential tax changes from the incoming administration, retirees and advisors view Roth conversions as a forward-thinking approach to manage long-term tax implications and ensure tax-free growth for future generations.

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Roth IRAs allow for tax-free withdrawals in retirement, provided certain conditions are met, making them a valuable tool for tax planning.