How to Reduce Roth Conversion Taxes by Up to 40% Using Strategic New Construction Investments

How to Reduce Roth Conversion Taxes by Up to 40% Using Strategic New Construction Investments

Converting a traditional 401(k) into a Roth IRA is one of the most powerful long-term tax strategies available.

The benefits are clear:

• Tax-free growth for the rest of your life
• Tax-free withdrawals in retirement
• Ability to access converted funds after five years, even if you’re under age 59½

But the biggest drawback is also the most intimidating part: the tax bill.

A Roth conversion triggers income tax in the year you convert, which can feel overwhelming, especially for high earners or individuals with large 401(k) balances.

What many people don’t know is there are strategies that may significantly reduce that tax impact, including by as much as 40%.

A Strategic Approach: Investing 401(k) Funds Into New Construction Projects

Through our licensed, vetted investment partners, Pinnacle 1 Tax Advisors offers clients an opportunity to convert 401(k) funds through a qualified self-directed intermediary and invest into new construction projects.

The benefit?

This approach may allow eligible investors to reduce the tax hit on their Roth conversion by up to 40%, based on structure, timing, and applicable tax incentives.

Key Highlights

• Investment timeline of approximately 3–5 years
• Target Internal Rate of Return (IRR): 37%
• Investments are diversified across multiple projects (9 at the time of this writing)
• Projects are structured with significant hedging to reduce overall investment risk

This strategy allows investors to reposition retirement funds more efficiently while potentially lowering the immediate tax burden of their conversion.

Example Scenario (Approximation)

401(k) Funds Converted: $200,000
Estimated Tax Without Strategy: $50,000
Estimated Tax With Strategy: $30,000

That’s a potential tax reduction of $20,000, depending on eligibility and individual tax circumstances.

Is This Strategy Right for You?

This approach is designed for:

• Accredited investors
• Individuals planning a significant Roth conversion
• Those seeking both tax efficiency and long-term growth
• Clients who understand the inherent risks of alternative investments

Before moving forward, Pinnacle 1 Tax Advisors conducts a full tax analysis to determine whether this strategy aligns with your goals and qualifies under your personal tax profile.

Final Thoughts

A Roth conversion can be one of the most important wealth-building decisions you make in your lifetime. When structured strategically, it may be possible to reduce the upfront tax impact while positioning your retirement funds for substantial long-term growth.

If you're considering a Roth conversion and want to explore advanced strategies like new construction investment through self-directed retirement structures, our team is here to help you understand your options.

Disclaimer

The information provided is not intended as individualized tax advice to potential investors or as a projection of future performance. Past performance does not guarantee future results, and alternative investments carry risk. This content is illustrative and hypothetical only and does not constitute an offer to buy or sell any security. Such offers are made solely through a Private Placement Memorandum to accredited investors. Tax implications vary widely. Investors should seek independent tax advice before participating in any private placement. Alternative investments involve a high degree of risk and may not be suitable for all investors. You should only purchase these securities if you can afford a complete loss of your investment. Liquidity may be limited. Please review all risk factors within the specific Private Placement Memorandum.