Roth IRA conversion

[Anonymous]

In what circumstances is it not a good idea to convert traditional IRAs to Roth? Or is conversion really a no-brainer (as all the money magz seem to suggest)?

[Anonymous]

It certainly depends on your age, and the older you are / closer you are to retirement, the less sense it makes to convert. The other thing to consider is you have to pay taxes for the conversion and this can add up to big bugs depending on how much you're converting. If you're not prepared to fork of $$$ in the immediate tax year, it may be beneficial to wait.

[Anonymous]

Anonymous wrote:It certainly depends on your age, and the older you are / closer you are to retirement, the less sense it makes to convert. The other thing to consider is you have to pay taxes for the conversion and this can add up to big bugs depending on how much you're converting. If you're not prepared to fork of $$$ in the immediate tax year, it may be beneficial to wait.

a

Sorry. Meant big bucks, not bugs!

[Freeman]

As the PP noted, it only makes sense if it will save you money. You'll pay a large amount in taxes, based on your current tax rates, if you do the conversion now. If you are only a few years from retirement, then it likely won't make sense. After retirement, you'll likely be paying a much lower tax rate, so the tax gains after retirement would not be enough to recover the conversion cost. If you still have a long time to retirement, then a lack of funds for the upfront cost is generally the only reason not to do it. We converted our accounts a few years back, when you could split the costs over a two year period, but unfortunately, that option isn't available now.

[Anonymous]

Freeman wrote:As the PP noted, it only makes sense if it will save you money. You'll pay a large amount in taxes, based on your current tax rates, if you do the conversion now. If you are only a few years from retirement, then it likely won't make sense. After retirement, you'll likely be paying a much lower tax rate, so the tax gains after retirement would not be enough to recover the conversion cost. If you still have a long time to retirement, then a lack of funds for the upfront cost is generally the only reason not to do it. We converted our accounts a few years back, when you could split the costs over a two year period, but unfortunately, that option isn't available now.

Thanks Freeman. We're late 40's and have extra/available cash to pay any tax due upon conversion. This IRA money would not be our main source of retirement funds. I like the idea that we would not be required to withdraw $$ from the Roth at age 70, or ever (so it could pass with our estate). We're in the highest tax bracket and probably will be for another 20 years. What would you suggest regarding a Roth conversion?

[Freeman]

My suggestion is that you get professional advice Seriously though, it sounds like a good idea based on what you said, and there are no current downsides. I would talk to a professional more familiar with your situation though, just to be sure.

[Anonymous]

Freeman wrote:My suggestion is that you get professional advice Seriously though, it sounds like a good idea based on what you said, and there are no current downsides. I would talk to a professional more familiar with your situation though, just to be sure.[/quoteI
I hear you on the advisor point. DH doesn't believe in paying someone for what we've been doing well for years. Funny b/c we pay for plumbers and lawn care and house cleaners and painters etc etc. but he doesn't think we should pay someone to tell us what to do with our money. We've done well so far but it's not been complicated to this point. thanks.

[Freeman]

Anonymous wrote:I hear you on the advisor point. DH doesn't believe in paying someone for what we've been doing well for years. Funny b/c we pay for plumbers and lawn care and house cleaners and painters etc etc. but he doesn't think we should pay someone to tell us what to do with our money. We've done well so far but it's not been complicated to this point. thanks.

Handling money is easy. Taxes and estates are not nearly as simple, particularly when you start planning for what you will leave for others. My DW was a CPA for years, then went to law school and currently works as a tax attorney. We are in the process of re-doing our will, and you know what her first step was? Contacting an attorney that deals with estate planning. An expert may not tell you anything you couldn't figure out yourself, but to us, it adds peace of mind that we aren't missing something important. Remind him that the decisions now may have no impact on your retirement, but it could ultimately reduce the amount you leave in your estate, resulting in less for children and grandchildren.

After reading the above, I realized that it sounded somewhat alarmist. The overall impact may be minimal, but it is important to consider all the implications for estate planning. The laws vary by state, and they are complex enough that an expert opinion is never a bad thing to have.

[Anonymous]

there are some good calculators online that let you play with different assumptions and see whether it makes sense. If you are far from retirement, assume a high return on your investments and will have a higher tax rate when you retire - it typically makes sense. alter any of those assumptions and it depends.