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traditional IRA >>>> Roth conversion
Started by militarymd
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I'd love to hear the pro's and con's...
If you think our insolvent deadbeat federal government is going to jack taxes up on everybody, it makes some sense to take the tax hit now (Roth) rather than later (traditional IRA).
Of course, there's nothing to stop them from changing the laws down the road, but you've got to make SOME assumptions in planning.
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Because I've always had a retirement account of some sort or another (military then 401k)...my entire IRA has been with after tax dollars....so it seems like a conversion for me is a win win situation.
I'm waiting for my advisor to get back to me ...and was wondering what others may think about this.
6 of 1 half dozen of the other, like PGG said its all about specualation of future tax rates, otherewise it doesn't really matter what you do. You're better off optimizing the portfolio of either your roth or traditional IRA b/c you'll likely get more bang for the buck outta that
traditional ira....you pay taxes on earnings when you withdraw
roth....you don't pay taxes on earnings when you withdraw
in my case....I already paid taxes on my contributions to my ira....so it seems to be a no brainer for me.
This is a great thread. Very interested in peoples responses. I have no $$ in my retirement account at the moment (35 y/o). Paying off loans that are 3.25% (100K). I am told to sit on the 2.5% loans which is about 120K (220k total).
My accountant suggests a SEP IRA this year if i wish and a ROTH 401k starting next year. I have NOT done my homework which is high on my things to do list. The whole thing is a bit confusing to me. Pay taxes now or don't and get taxed later... that is about as deep as I have it- although the little bit I have done suggest paying taxes now is better than later.
I have also been told that real estate is not a bad investment and if done right could actually be a high yield/low risk if done properly.
I am planning to sit down with a broker at some point in the near future.
Interested in responses of those of you who know this subject more than superficially.
My accountant suggests a SEP IRA this year if i wish and a ROTH 401k starting next year. I have NOT done my homework which is high on my things to do list. The whole thing is a bit confusing to me. Pay taxes now or don't and get taxed later... that is about as deep as I have it- although the little bit I have done suggest paying taxes now is better than later.
I have also been told that real estate is not a bad investment and if done right could actually be a high yield/low risk if done properly.
I am planning to sit down with a broker at some point in the near future.
Interested in responses of those of you who know this subject more than superficially.
Your missing the other part of that equation. With Roth IRAs you're paying with after tax dollars so you've already paid the taxes. Traditional IRA deposits are tax dedcutable, that why you pay when you take money out. Both IRAs you pay your taxes, you either pay it on the way in or the way out. If you have a current Roth, I don't know what benefit you would achieve by converting it to a traditional IRA and it seems that if you converted a traditonal IRA to a roth they would figure out how to charge you taxes on the money going to the roth. Neither one is really any better than the other in and of itself it all has to do with how you use it
The highlighted text is not correct if you ALREADY have a retirement plan like the military's or a 401k.
My IRA is ALREADY with post tax dollars....and I would have to pay taxes on earnings on the way out....but NOT if I convert to a ROTH which I have not been eligible for because of my tax bracket.
So they are taxing you on the way in and the way out? That sux and doesn't make a whole lot of sense.
It is my understanding that when you do convert a traditoinal IRA to a roth IRA you must pay taxes on the money you are converting over so you're pretty much breaking even tax wise. I would actually think you should not convert to a roth IRA because your tax bracket is likely to be lower in the future when you retire than it is now
When you do convert to a roth, you will have to pay for the earnings that have accumulated so far on your after tax contributions. I believe this can be spread over 2 years.
Also, if you have a mixture of both pretax and aftertax traditional IRA, you can not just convert your aftertax IRA.
For example, Pretax account has $5000 and Aftertax account has $5000. If you want to only convert $5000, it can not be just taken from your aftertax account. $2500 would be from your pretax account and $2500 from your aftertax account. So you will pay income tax on $2500.
For example, Pretax account has $5000 and Aftertax account has $5000. If you want to only convert $5000, it can not be just taken from your aftertax account. $2500 would be from your pretax account and $2500 from your aftertax account. So you will pay income tax on $2500.
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deleted126335
Ideal person to convert is someone who expects their tax rate to be higher when they draw the money from the Roth than in 2010.
Reasons for converting:
-Tax rates historically low.
-tax rates almost certainly going up.
-Roth IRA assets are ideal to pass on to next generation. Should have additional decades of tax free growth and tax free withdrawals. These are the last dollars that a retiree looking to pass on an estate should spend.
Reasons Against converting:
- Most anesthesiologists currently in high tax bracket. Hard to imagine that if Roth money is for a current doc's retirement that tax rates will not be lower than current average bracket for anesthesiologists.
-The gummit might change the rules and tax distributions from Roth for high income retirees They have done similar things in the past.
What am I planning on doing?: Partial conversion.
my entire ira is after tax...so I guess I am good to go....
I have a small portion that is "combat pay" from being deployed in a war zone for which I never have to pay taxes on.
