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Reply to "Converting 401k $ to a Roth IRA?"
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[quote=Anonymous]Do not do that while you are working. You are likely making the most money of your career and at your highest ever marginal rate - you do not want to prepay tax at the highest possible rate. Let’s say you are in the 200k-400k taxable income range. Your federal tax rate is 24% on every extra dollar, so every dollar you convert is taxable at 24% now (plus state tax, ignoring any early withdrawal penalties), then tax free in retirement. If you leave it in your 401k, assuming this will be your primary source of income, when you take it out you will have a lower effective tax rate as you will have graduated tax rates - first 24k at 10%, next 75k at 12%, next 100k at 22%, then only the amounts over 200k at 24%. This means if you take out 200k/year in retirement your effective rate is 16.75%, if you take 150k/year you are at 15%. Why pay 9% more in tax? [/quote]
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