Permalink Submitted by Alan Spross on Fri, 2008-11-14 23:23
There are really dozens of different considerations, and each individual may end up weighting them differently. However, the best time to convert is when you expect your tax rate on the conversion to be less than the average marginal rate you will pay in retirement. If you have no Roth or a very low amount, you might also convert some at the same rate you expect in retirement as a hedge against future tax rate increases and/or your own financial success, inheritances etc.
Saver types do better with Roths because they tend to accumulate enough assets in retirement that along with SS income and pensions end up in higher tax brackets then. Conversely, spenders of tend to NOT accumulate much are better off not paying taxes on conversions because they may tend to be a lower brackets in retirement.
However, there are many other more minor considerations as well such as your estate plans, charitable plans, whether you are buying long term care coverage or expect other large medical itemized deductions, your guess as to the future of tax rates (deficits lead to higher tax rates eventually), your guess regarding major tax reform such as an added consumption tax which would hurt Roths, etc etc
Permalink Submitted by Alan Spross on Fri, 2008-11-14 23:23
There are really dozens of different considerations, and each individual may end up weighting them differently. However, the best time to convert is when you expect your tax rate on the conversion to be less than the average marginal rate you will pay in retirement. If you have no Roth or a very low amount, you might also convert some at the same rate you expect in retirement as a hedge against future tax rate increases and/or your own financial success, inheritances etc.
Saver types do better with Roths because they tend to accumulate enough assets in retirement that along with SS income and pensions end up in higher tax brackets then. Conversely, spenders of tend to NOT accumulate much are better off not paying taxes on conversions because they may tend to be a lower brackets in retirement.
However, there are many other more minor considerations as well such as your estate plans, charitable plans, whether you are buying long term care coverage or expect other large medical itemized deductions, your guess as to the future of tax rates (deficits lead to higher tax rates eventually), your guess regarding major tax reform such as an added consumption tax which would hurt Roths, etc etc