2019 US tax year end planning: US pensions

Taxpayers holding traditional IRAs or 401(k) plans continue to be able to convert them to a Roth IRA. 

Last updated: 13 November 2019

Converting your traditional IRA to a Roth IRA will for some taxpayers, create long-term tax benefits, as generally, subsequent withdrawals are not taxable, and no minimum distribution is required each year after reaching age 70 ½ (unlike for traditional IRAs). Conversions are taxable in the US at ordinary income tax rates and so will create a tax charge for 2019 that must be met by other sources of cash.

However, given the flexibility that a Roth may bring, taxpayers who are more suited to a Roth IRA from an investment perspective may wish to consider making the conversion now. Where contributions into the 401(k) plan or traditional IRA also involve a period of foreign service, available foreign tax credits may be used to reduce the liability. No NIIT (Net Investment Income Tax) is due on any distribution, conversion or rollover to/from a Roth IRA account.

What should you do?

You may want to consider transferring your traditional IRA/401(k) plan into a Roth IRA before the end of 2019.

Click here to go back to 2019 US Tax Year End Planning. 

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