Managing Your Finances

Advanced Strategies

Roth Conversions

What Is a Roth IRA Conversion?

An IRA conversion is simply changing the account classification from a traditional IRA to a Roth IRA. Beginning in 2010, the federal government began allowing investors to convert their traditional IRAs into Roth IRAs, regardless of the amount of income they earned.

In general, people can invest in a Roth IRA only if their modified adjusted gross income (MAGI) falls below a certain limit. For example, if you’re married filing jointly and earn more than $206,000 a year in 2020 (up from $203,000 in 2019), you can’t invest in a Roth IRA; single and head of household filers have a cutoff of $139,000 (up from $137,000 in 2019). 

But there are no income limits for conversions.

Sound good? It can be—but, like most investment decisions, a Roth IRA conversion has its advantages and disadvantages.

Advantages of a Roth IRA Conversion

A key benefit of doing a Roth IRA conversion is that it can lower your taxes in the future. While there’s no upfront tax break with Roth IRAs, your contributions and earnings grow tax-free. In other words, once you pay taxes on the money that goes into a Roth IRA, you’re done paying taxes, provided you take a qualified distribution.

While it’s impossible to predict what tax rates will be in the future, you can estimate if you’ll be making more money, and therefore, be in a higher bracket. In many cases, you’ll pay less in taxes in the long run with a Roth IRA than you most likely would with the same amount of money in a traditional IRA.

Another perk is that you can withdraw your contributions (not earnings) at any time, for any reason, tax-free. Still, you shouldn’t use your Roth IRA like a bank account. Any money you take out now will never get the opportunity to grow. Even a small withdrawal today can have a big impact on the size of your nest egg in the future.

Moving to a Roth also means you won’t have to take required minimum distributions (RMDs) on your account when you reach age 72. If you don’t need the money, you can keep your money intact and pass it to your heirs.

Drawbacks of a Roth IRA Conversion

The largest disadvantage of converting to a Roth IRA is the whopping tax bill. If, for example, you have $100,000 in a traditional IRA and convert that amount to a Roth IRA, you would owe $24,000 in taxes (assuming you’re in the 24% tax bracket). Convert enough and it could even push you into a higher tax bracket.

Of course, when you do a Roth IRA conversion, you risk paying that big tax bill now when you might be in a lower tax bracket later. While you can make some educated guesses, there’s no way to know for sure what tax rates (and your income) will be in the future.

Yet another common issue that many taxpayers face is contributing the full amount and then converting it when they have other traditional IRA, Simplified Employee Pension, or SIMPLE IRA  balances elsewhere. When this happens, you're required to compute a ratio of the monies in these accounts that have been taxed already versus the aggregate balances that have not been taxed (in other words, all tax-deferred account balances for which you deduct your contributions versus those for which you didn’t). This percentage is counted as taxable income. 

Yeah, it can get complicated.

Another drawback: If you’re younger, you have to keep the funds in your new Roth for five years and make sure you’ve reached age 59½ before taking out any money. Otherwise, you’ll be charged not only taxes on any earnings, but also a 10% early withdrawal penalty—unless you qualify for a few exceptions.


  • Contributions and earnings grow tax-free.
  • You can withdraw contributions at any time, for any reason, tax-free.
  • You don’t have to take required minimum distributions.
  • Those normally ineligible for a Roth IRA can use it to create the account and a tax-free pool of cash.


  • You pay tax on the conversion when you do it—and it could be substantial.
  • You may not benefit if your tax rate is lower in the future.
  • You must wait five years to take tax-free withdrawals of earnings, even if you’re already age 59½.

Paying the Tax Bill on a Roth IRA Conversion

If you do a Roth IRA conversion, how will you pay that tax bill? And when?

Many people don’t realize they can’t wait until they file their taxes to pay the tax bill on the conversion. You must send in a check as part of your estimated quarterly taxes.5

The best way to pay the tax bill is to use money from a different account—such as from your savings or by cashing out a CD when it matures. The least preferred method is to get the money from the retirement investment that you are converting. Here’s why.

Paying your taxes from your IRA funds, instead of from a separate account, will erode your future earning power. Going back to our example above: Say you convert a $100,000 traditional IRA; after paying taxes, you end up depositing only $76,000 into the new Roth account. Going forward, you’ll miss out on all of the interest that you would have earned on the money. Forever.

While $24,000 may not seem like a lot, compounding interest means that money could grow to about $112,000 over the course of 20 years all by itself at an interest rate of 8%. That’s a lot of money to forgo in order to pay a tax bill.

The Bottom Line

A Roth IRA conversion can be a very powerful tool for your retirement. If your taxes rise because of increases from the government—or because you earn more, putting you in a higher tax bracket—a Roth IRA conversion can save you considerable money in taxes over the long term. And the backdoor strategy, well, opens the Roth door to high-earners who normally would be ineligible for this sort of IRA, or who are unable to move money into a tax-free account by any other means.

But, there are several drawbacks to a conversion that should be taken into consideration. A big tax bill that can be tricky to calculate, especially if you have other IRAs funded with pre-tax dollars. It’s important to think carefully about whether or not it makes sense to do a conversion and consult with a tax advisor about your specific situation.

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QCD (Qualified Charitable Distribution) 

A QCD is a direct transfer of funds from your IRA, payable directly to a qualified charity, as described in the QCD provision in the Internal Revenue Code. Amounts distributed as a QCD can be counted toward satisfying your RMD for the year, up to $100,000. 

The QCD is excluded from your taxable income. This is not the case with a regular withdrawal from an IRA, even if you use the money to make a charitable contribution later on. If you take a withdrawal, the funds would be counted as taxable income even if you later offset that income with the charitable contribution deduction.

Why is this distinction important? If you take the RMD as income, instead of as a QCD, your RMD will count as taxable income. This additional taxable income may push you into a higher tax bracket and may also reduce your eligibility for certain tax credits and deductions. To eliminate or reduce the impact of RMD income, charitably inclined investors may want to consider making a qualified charitable distribution (QCD). For example, your taxable income helps determine the amount of your Social Security benefits that are subject to taxes. Keeping your taxable income level lower may also help reduce your potential exposure to the Medicare surtax.

A QCD must adhere to the following requirements:

  • You must be at least 70½ years old at the time you request a QCD. If you process a distribution prior to reaching age 70½, the distribution will be treated as taxable income.
  • For a QCD to count toward your current year's RMD, the funds must come out of your IRA by your RMD deadline, which is generally December 31 each year.
  • Funds must be transferred directly from your IRA custodian to the qualified charity. This is accomplished by requesting your IRA custodian issue a check from your IRA payable to the charity. You can then request that the check be mailed to the charity, or forward the check to the charity yourself.
    Note: If a distribution check is made payable to you, the distribution would NOT qualify as a QCD and would be treated as taxable income.
  • The maximum annual distribution amount that can qualify for a QCD is $100,000. This limit would apply to the sum of QCDs made to one or more charities in a calendar year. If you’re a joint tax filer, both you and your spouse can make a $100,000 QCD from your own IRAs.
  • The account types that are eligible for QCDs include:
    • Traditional IRAs
    • Inherited IRAs
    • SEP IRA (inactive plans only*)
    • SIMPLE IRA (inactive plans only*)
  • Under certain circumstances, QCDs may be made from a Roth IRA. Roth IRAs are not subject to RMDs during your lifetime, and distributions are generally tax-free. Consult a tax advisor to determine if making a QCD from a Roth is appropriate for your situation.
  • Certain charities are not eligible to receive QCDs, including donor-advised funds, private foundations, and supporting organizations. You are not allowed to receive any benefit in return for your charitable donation. For example, if your donation covers your cost of playing in a charitable golf tournament, your gift would not qualify as a QCD.
  • Contributing to an IRA may result in a reduction of the QCD amount you can deduct.

If you are 72 or older under RMD and make charitable contributions utilizing QCDs might save you taxes, please contact us for more information. 

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HSA (Health Savings Account)

A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs. HSA funds generally may not be used to pay premiums.

While you can use the funds in an HSA at any time to pay for qualified medical expenses, you may contribute to an HSA only if you have a High Deductible Health Plan (HDHP) — generally a health plan (including a Marketplace plan) that only covers preventive services before the deductible. For plan year 2019, the minimum deductible is $1,350 for an individual and $2,700 for a family. For plan year 2020, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family. When you view plans in the Marketplace, you can see if they’re "HSA-eligible.

Big plus: tax savings

An HSA can help you save on health care and also offers some tax advantages.

  • You pay no taxes on the money you put into your HSA.
  • You pay no taxes on the money you take out of your HSA to pay for eligible health care expenses. You will pay a penalty on HSA funds you use to pay for non-eligible expenses.
  • You earn tax-free interest on the money in your HSA account. You may also have options to invest the money in your account.
  • You don’t lose the money in your account at the end of the year. Your HSA balance rolls over and is always yours to spend, save and invest.
  • At age 65, you can use your HSA funds for any purpose without a penalty. The money you take out to pay for eligible health care expenses continues to be tax-free.

Money in your HSA can earn interest

In many cases, you can invest a portion of your HSA balance if you maintain a $1,000 balance in your account. The money you invest (in mutual funds or stocks, for example) continues to grow tax-free. These are some of the reasons many people use their HSA to save for retirement.

Benefits of choosing an HSA Plan 

  1. Save on taxes

    1. Your HSA contributions go into your account before taxes. The money you save to your HSA lowers your taxable income – so you may pay less in taxes. Examples:
    2. You’re a college student
      1. Your tax bracket: 10%
      2. Your HSA contribution: $25/month ($300/year)
      3. You save: $30 year in taxes (10% of $300 = $30)
    3. You’re a young professional
      1. Your tax bracket: 15%
      2. Your HSA contribution: $100/month ($1200/year)
      3. You save: $180 year in taxes (15% of $1200 = $180)
    4. You’re a retirement-bound professional 
      1. Your tax bracket: 25%
      2. Your HSA contribution: $300/month ($3,600/year)
      3. You save: $900/year in taxes (25% of $3,600 = $900)
  2. Save on your medical expenses

    1. Use your HSA funds to pay coinsurance, copays and your deductible (all tax-free). You can also use HSA funds to pay for some costs your plan doesn’t cover, like dental care, orthodontia contacts and eyeglasses. See eligible health-related expenses.
    2. If you use HSA money for non-eligible expenses, you will pay taxes and a penalty on the money you took out . The penalty no longer applies starting at age 65.
  3. Your money works harder in an HSA

    1. Money in your HSA account earns tax-free interest.
    2. Any unused HSA funds roll over to the next year.
    3. You can spend your HSA dollars on eligible health care expenses, or save and investment them for the future.
  4. You're in control

    1. You decide when and how to spend or save the money in your HSA. The money is yours forever. It doesn’t expire, and you can take it with you if you change jobs or switch to another high-deductible health plan.
  5. An HSA is an investment

    1. You can invest a portion of your HSA balance in mutual funds, stocks and bonds. Generally, this option is available only when you maintain a certain account balance.
  6. Save for retirement

    1. You can use your HSA to save for retirement. At age 65, you can use the funds for any purpose without a penalty. The money you take out to pay for eligible health care expenses continues to be tax free. You also can take money out for other reasons without paying a penalty.

For more information on contribution qualifications for HSA accounts, please contact Capital Insight Financial Group today.

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Standard Strategies


Depending on your stage of life, chances are you’ll have a distinct approach to saving. New graduates or young couples have different needs than retirees or mid-career families. But no matter your personal situation, we can help you develop financial habits that will lay a strong foundation for your savings.

Younger individuals and couples have a number of benefits in terms of financial management. Low insurance costs and a long investment horizon, combined with few responsibilities, can make for an excellent financial base. We can help you build on these advantages, while at the same time considering a debt load that might include student loans, car payments or perhaps a mortgage.

Couples planning for a first child enter into a new level of commitment—both personally and financially. Learn how to save for a child through specialized insurance and investment products, such as a Registered Education Savings Plan.

Mid-career professionals typically have higher incomes than younger investors—but they also carry more responsibilities. From mortgage payments to a child’s education, consider a financial plan that balances your needs and obligations.

Retirees have worked hard at their careers, and now is the time for relaxation and celebration. Chances are children have moved from home, the mortgage is mostly paid off and a few investments are coming to fruition. However, income levels may have dropped after retirement. Find out how to manage your finances in a way that allows you to fully enjoy the fruits of your hard work.

In short, no matter your life stage, contact us today to learn how to balance savings and investing with your other commitments.

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Buying a home or second property can be one of the most exciting purchases of your life—but it is also a big decision that will have a major impact on financial planning. Whether you’re looking at a one-bedroom condominium or a five-bedroom house, we will work with you to help plan a mortgage strategy that fits your needs and considers your other financial responsibilities.

From choosing the right time to buy a house to deciding whether it is even a good idea, we can help guide you through this important decision. By assessing all the costs involved - from taxes to renovations - we will work with you to determine whether taking out a mortgage makes sense for your budget.

If you are considering taking out a mortgage, contact us today to discuss how to do so in a way that best fits your situation.

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Tax Planning

No one likes taxes. But through the advice of a professional financial advisor, you can access products and services that help ease the burden. Charitable contributions, life insurance policies, various retirement plans and investment products can all be useful tools in an effective tax strategy. Working together, we will consider your personal situation and design a tax plan that fits your needs.

  • Charitable donations, which benefits important not-for-profit work and allows donors to maximize tax credits.
  • Life insurance products that build tax-advantaged capital for retirement.
  • Self and company sponsored retirement plans (401k,403b,IRA,SEP IRA, Roth IRA)
  • Investment products that provide for tax benefits, like annuities and permanent life insurance

Contact us today to learn more about tax-planning products and services that are specifically tailored for your needs. 

Succession Planning

Preparing for succession after death is a difficult issue to discuss, but it is also an important part of any comprehensive financial plan.

We can help you and your loved ones approach succession planning in a constructive manner that ensures they avoid problems and are well cared for in the event of your death. The process involves two main considerations: life insurance and preparing a trust or will.

Life insurance can ease the financial burden and provide security for your loved ones in the event of your death. A lump-sum payment can be used for mortgage costs or to supplement lost income, helping your successors during a difficult period. Financial security and stability can make it easier to cope with the loss of a loved one.

A written will or creation of a Trust provides a means to guide your loved ones through the succession process. By naming your executors and trustees and providing instructions on the distribution of your estate, your surviving loved ones avoid having to guess your wishes. Rather than provincial law determining how your assets are to be divided—a situation that can result in lengthy court proceedings—a clear, carefully considered written will provides clear instructions to your successors. Save your loved ones the stress of dealing with financial issues by planning for your succession while you are alive.

Contact us today to discuss succession planning in more detail. 

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Paying for Retirement

Retirees who have prepared for their retirement usually rely upon three main sources of income: Social Security, individual or employer-sponsored qualified retirement plans, and their own savings or investments. A sound retirement plan will emphasize qualified plans and personal savings as the primary sources with Social Security as a safety net for steady income.

Social Security was established in the 1930’s as a safety net for people who, after paying into the system from their earnings, could rely upon a steady stream of income for the rest of their lives. The age of retirement, when the income benefit starts was, originally, age 65 which was referred to as the “normal retirement age”. Now, for a person born after 1937, the normal retirement age is being increased gradually until it reaches age 67 for all people born in 1960 and beyond. The amount paid in benefits is based upon the earnings of an individual while working. If a person wanted to continue to work and delay receiving benefits, they could do so build up a larger benefit. Conversely, early retirement benefits are available, at a reduced level, as early as age 62. We will help you understand the best filing age for your benefit, 62, 66 ½, 70 and we illustrate how it fits into your retirement income needs. 

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Retirement Plans  (401k, 403b, 457, IRA, ROTH, SEP IRA) 

Most employer-sponsored plans today are established as “defined contribution” plans whereby an employee contributes a percentage of his earnings into an account that will accumulate until retirement. As a qualified plan, the contributions are deductible from the employee’s current income. The amount of income received at retirement is based on the total amount of contributions, the returns earned, and the employee’s retirement time horizon. As in all qualified plans, withdrawals made prior to age 59 ½ may be subject to a penalty of 10% on top of ordinary taxes that are due. 

Depending on the size and type of the organization, they may offer a 401(k) Plan, a Simplified Employee Pension Plan or, in the case of a non-profit organization, a 403(b) plan. 

Individual Retirement Accounts (IRA) are tax qualified retirement plans that were established as a way for individuals to save for retirement with the benefit of tax favored treatment. The traditional IRA allows for contributions to be made on a tax deductible basis and to accumulate without current taxation of earnings inside the account. Distributions from a traditional IRA are taxable. A Roth IRA is different in that the contributions are not tax deductible, however, the earnings growth is not currently taxable. To qualify for tax-free and penalty-free withdrawals of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching 59 ½ , may be subject to an additional 10% federal tax penalty.


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