Luke DeBoer

CFP®
Personal Finance, Retirement, Investing
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“Luke DeBoer, Founder of Thinking Wealth”
Firm:

Thinking Wealth

Job Title:

Financial Adviser

Biography:

Luke DeBoer is the Founder of Thinking Wealth.

Luke earned his Bachelors of Science in Finance at St. Cloud State University and his MBA at The Carlson School of Management at the University of Minnesota with a concentration in Tax, is a CFP®, and is currently in the process of becoming a Certified Benefits Professional.

Check out the Way to Wealth blog on thinkingwealth.com for deeper insights.

Education:

BS, Finance, St. Cloud State University

Assets Under Management:

$1 million

CRD Number:

5696562

Disclaimer:

What I'm writing here is not advice and should only be read with the knowledge that it is informational only. If you want my advice as to how anything I write might apply to you personally you should reach out.



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    401(k), IRAs, Taxes
Should I convert my 401(k)?
100% of people found this answer helpful

Good range of questions here. I'll start from the top and work down. 

1) If you roll the assets to a Traditional IRA (assuming the assets are all pre-tax to start with), then there will not be any current tax liability.

2) You can convert as little or as much as you'd like to a Roth IRA (the $5,500 cap is only for contributions, not conversions). This likely goes without saying but I'll say it anyway, just because you can convert all of it doesn't mean you should convert all of it. 

3) You cannot claim a deduction on rolling assets into a Traditional IRA, only if you contribute new dollars (and there are limitations even on that). 

Now that those are out of the way, I'd like to encourage you to be thoughtful about Roth conversions as they can be an awesome way to reduce your total lifetime tax liability. There are many effective strategies that can be employed and I won't go through all of them. However, I'll share one common form of this. 

What you can do is "fill-up the tax bracket." So let's pretend some things are true to explain the strategy. Let's first pretend that you know that your taxable income will end up being $10K away from the 25% tax bracket for the year. Let's also pretend that you are sitting on some cash in your savings account that you don't have any plans for. Let's finally pretend that you are fairly certain that your retirement income is going to be putting you in at least a 15%+ bracket. What you could do is convert exactly enough to bump you up to the next bracket, in this made-up scenario that would be $10K. You know that this will cost you 15% at the federal level (ignoring state taxes, if applicable) so you set aside $1,500 from your savings for your future tax bill. 

There are other strategies that can be effective, of course, but the main point is that you should make sure to be thoughtful of your approach.

October 2016
    IRAs, Real Estate
Can I withdraw from my Roth IRA to purchase a home?
100% of people found this answer helpful
October 2016
    401(k)
Will I have restrictions on continuing to contribute to my 401(k)?
100% of people found this answer helpful
October 2016
    Investing, Annuities
Should I cash out my variable annuity to avoid high fees?
100% of people found this answer helpful
October 2016
    Investing
How should I invest my savings to earn interest?
100% of people found this answer helpful
October 2016