Rollover to Roth of no benefit?
HI
I have sufficient non-IRA and pension income that I do not forsee having to withdraw funds from my IRA. However, I don’t have surplus non-IRA funds to pay taxes on a roll over of a significant part of my IRAs, all of which are pre-tax.
I currently am just inside the 25% tax bracket and am 60 years old. Every dollar I withdraw from an IRA will also reduce my medical deductions, raising my marginal tax rate to 26.875%. I don’t plan to begin Social Security payments until I’m 66.
All my analyses show me staying in this bracket once RMDs begin in 10 years. As long as that is the case, I don’t see the benefit of rolling over my IRAs to a Roth. Once my RMDs begin, I could use them to pay tax on fairly large rollovers to a Roth, but it seems that it all is a wash as long as my tax bracket remains the same.
Am I missing something? Thanks
Permalink Submitted by Alan Spross on Sat, 2007-09-01 18:32
No, you don’t have a real compelling tax reason to convert. However, if you drill down into some of the areas explored in the attached article, you might spot something of interest. Even when there is no obvious benefit, having some assets in a Roth provides you will more flexibility if tax law changes considerably or if your personal circumstances change. Since the Roth is not subject to RMDs by the owner, and can produce tax free earnings after the qualification period, you would always have a source of tax free income when you needed it. Of course, being just out of the 15% bracket may result in the opportunity to convert small amounts if you drop down into the 15% bracket. Another factor is the state income tax situation in your state and/or if you might re locate to another state with much higher or lower rates than where you are now. Finally, paying taxes from a conversion distribution is not that bad after age 59.5 because there is no penalty on the tax payments.
http://tax.cchgroup.com/images/fot/JORP_10-03-07_Keebler-Bigge.pdf
Permalink Submitted by Al Fry on Sat, 2007-09-01 18:34
Not really. On the other hand what I like about Roths is my kids ability to keep getting tax-free gowth and distributions over many years in the future! I hope they don’t lump-sum it, but then I won’t know either!