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New Tax Rates for Joint Returns Make Roth Conversions Attractive to Married Couples

New Tax Rates for Joint Returns Make Roth Conversions Attractive to Married Couples

September 13, 2018

Roth IRAs are a powerful investing tool many individuals favor to save for retirement. Thanks to the Tax and Jobs Act of 2017, the income limits for eligibility have been expanded, allowing more savers to own and convert to Roth IRAs.

The expanded income tax brackets, which generally reduce tax rates overall, makes converting Roth IRA an easier decision, especially if you’re married and filing a joint return. But, if you’re asking yourself why you should convert to a Roth in the first place, there are a few good reasons these plans could enhance your overall portfolio.

Roth IRAs allow you to:

  • Enjoy tax-free withdrawals in retirement

  • Grow tax-free income for a longer time period

  • Leave an income-tax free inheritance to your heirs

If those benefits interest you, then read on…

The rule-of-thumb to determine if a conversion is a good move for you to make lies in a simple question: Will the tax rate on the conversion be less than or not much higher than the tax rate will be on your distributions when you retire? If not, why convert? After all, why in the world would you convert if that means you’d face a higher tax liability?

One strategy in years past was for IRA owners to perform conversions over several years or to wait until they were closer to retirement age (or already retired) to convert. However, now that the Tax Act has reduced our tax rates overall—deciding to convert has become easier for those considering the move, especially if you’re married filing joint returns. 

In fact, the new tax brackets provide great relief for and were designed specifically to benefit married couples.

New tax rates for joint returns:

  • 10% up to $19,050
  • 12% up to $77,400
  • 22% up to $165,000
  • 24% up to $315,000
  • 32% up to $400,000
  • 35% up to $600,000
  • 37% for taxable income over $600,000

What does this mean for you? Well, because the new income brackets are two times as wide as their single-bracket counterparts—IRA owners are given a larger window of opportunity and incentive to convert.

  • If you’re married, you can benefit from converting each year if you can maneuver within the 10-12% income bracket.
  • If you already exceed that bracket, converting as much as possible makes sense, provided you can do so and fall within the 22-24% income bracket.
  • If you fall within that higher bracket regardless, consider converting your entire IRA to maximize the advantages doing so provides.

Those who fall within the 22-24% bracket may have the most to benefit from Roth conversions. At the least, you should have a sit-down with your financial advisor or tax professional to see if a conversion is the right move for you. As we covered in our last article, re-do conversions are no longer an option for 2018 and future conversions. It is important that you consider every way a Roth conversion will impact your financial situation before making your decision.

The Tax and Jobs Act of 2017 has delivered a bit of give-and-take in the realm of Roth IRA conversions. While it is a disappointment that conversions can no longer be undone, the wider income brackets provide a little relief.


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.