IRA Financial Blog

How to Pay NO Tax on a Roth IRA Conversion

Adam Talks

In today’s episode of Adam Talks, Adam Bergman, Esq. discusses the Roth IRA conversion and how to pay no tax on it when receiving a tax deduction for a particular type of investment.

https://youtu.be/MUNZ6pxcIlI

How to Pay NO Tax on a Roth IRA Conversion

On this episode of Adam Talks, tax attorney and founder of IRA Financial, Adam Bergman, discusses a strategy for minimizing taxes on Roth IRA conversions. He explains that the strategy involves utilizing significant tax deductions available in the oil and gas industry. By investing a portion of the conversion tax amount into an oil and gas partnership, individuals can offset the tax owed on their Roth conversion. This strategy is particularly effective for average conversions of around $100,000, where a smaller investment in oil and gas may suffice to eliminate or reduce the conversion tax.

Bergman emphasizes the importance of using personal funds, rather than retirement accounts, for oil and gas investments in order to qualify for deductions. He notes that investing in oil and gas through an IRA does not provide deductions and may trigger unrelated business income tax (UBIT). However, if structured properly, investments that provide a royalty stream can avoid triggering UBIT.

Bergman highlights the immediate and substantial tax deductions offered by oil and gas investments, especially in the first year. These deductions can help reduce the ordinary income tax on a Roth conversion. He suggests consulting experienced individuals in the oil and gas industry to determine the initial deduction amounts.

Investing in oil and gas with personal funds is considered safe and offers tax advantages. Returns on investment in this sector are considered a return of capital and are not taxable. Bergman recommends using personal funds for oil and gas investments, while generally advocating for utilizing IRAs or 401(k)s for other investments due to their tax advantages.

By combining the tax benefits of oil and gas investments with the advantages of Roth IRAs, individuals can create a tax-efficient legacy for their loved ones. Roth IRAs offer tax-free growth and distribution benefits, no required minimum distributions, and the ability to pass on tax-free funds to beneficiaries.

Bergman presents oil and gas investments as a home run strategy, especially when used to offset taxes on Roth conversions. He encourage listeners to discuss this strategy with their accountants or financial advisors to determine its suitability for their individual circumstances. Overall, this informative episode provides a strategy for optimizing Roth conversions and minimizing ordinary income tax through oil and gas investments.

To learn more, be sure to listen to the whole episode!

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