By Mike Gibbons, RICP®
Looking to pay less in taxes when you retire from the pharmaceutical industry? Roth conversion benefits could be your answer. By converting funds from your traditional IRA or 401(k) now, and paying taxes up front, you can set yourself up for tax-free growth in retirement.
But is it the right move for you? At Gibbons Financial Group, we help professionals like you navigate these decisions with confidence, designing your retirement strategy to work for your unique financial goals.
Let’s break down the differences between a traditional and Roth IRA, discuss what the conversion process involves, and determine if this approach could benefit your retirement plan in the pharmaceutical industry.
Traditional vs. Roth IRA
A traditional IRA provides a tax benefit on the front end, meaning qualifying individuals enjoy a benefit sooner rather than later. Contributions are made with pre-tax earned income. At tax time, the contributions made over the last year are fully or partially tax-deductible based on income and whether you or your spouse are participating in a work-sponsored retirement plan.
Here’s a breakdown based on tax filing status:
Single: The tax deduction phases out for those who are covered by a workplace retirement plan and have an adjusted gross income ranging from $79,000 to $89,000.
Single: The tax deduction is available for any amount of AGI if the taxpayer is single and not covered by a workplace retirement plan.
Married: The tax deduction phases from $126,000 to $146,000 for the spouse making traditional IRA contributions with a work retirement plan.
The 2025 max annual contributions into a traditional IRA is $7,000 (or $8,000 for those over 50). A traditional IRA also comes with a required minimum distribution (RMD), beginning April 1 after your 73rd birthday. (Note: Under the SECURE 2.0 Act, that RMD age will rise to 75 in 2033.) Ignoring the RMD will land you a hefty penalty fee.
Conversely, a Roth IRA provides a future tax benefit, once you’re ready to withdraw the funds. Roth IRA contributions are made with after-tax money you’ve earned through work. When it’s time to cash in, you will not be assessed any further taxes on the initial investment or the gains.
Unlike a traditional IRA, there are no RMDs associated with a Roth IRA. You may also withdraw contributions at any time, but be careful to not withdraw any of the gains before you’re 59½ years of age to avoid a 10% penalty fee.
Roth IRA Conversion and Taxes
A Roth IRA conversion is a tax strategy that normally involves converting tax-deferred savings (IRA, 401(k)) into a tax-free retirement account. In the case of a Roth IRA conversion, you’re ultimately deciding the future tax-free benefits of a Roth IRA are superior to paying the taxes now on pre-tax retirement money.
But how is that determined? A simplistic method may be to first consider your present tax bracket and whether you remain in this bracket (or ascend to a higher bracket) with the conversion. Then consider your potential bracket at and during retirement. If the current bracket is significantly lower than the future one, a conversion may make sense. If not or the brackets are equal, a conversion may not be advisable.
Is a Roth IRA Conversion Right for Your Retirement?
If you work in the pharmaceutical industry and have a traditional IRA, a Roth conversion may be a smart strategy, especially if you anticipate being in a higher tax bracket when it's time to withdraw.
Roth conversion benefits extend beyond just taxes, impacting your retirement planning, investment management, and estate planning. Considering the complexity of the financial landscape in the pharmaceutical sector, partnering with experienced financial professionals can help you navigate these decisions effectively.
At Gibbons Financial Group, we focus on helping pharmaceutical professionals evaluate if a Roth conversion aligns with their unique financial goals. We’ll guide you through every step of the process, helping you plan for a more tax-efficient retirement.
Schedule a free consultation today to start your journey. Call 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And be sure to join our free webinar, Retiring Early From Pharma.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.