Converting a regular IRA to a Roth IRA

Submitted by Brian Walsh on Mon, 2013-06-03 19:26

I have a client, 59 years of age. He and his wife both have two small regular IRA accounts each about $24,000. I am trying to convince him to convert them both to a ROTH IRA, pay the taxes on them now (from other funds) and then let the money stay in this account. They have other money in a 401K plan so this is NOT their only retirement funds.

The client claims he is in the 50% income tax bracket so whatever he converts now will be taxed at 50%. He thinks he is better off waiting until he retires, when his tax rate will be lower than it is now.

Does anyone have any calculators or other work that they can point me to run a scenario for this client where I can show him some figures that would prove paying the taxes now is better than waiting for 8 years before he retires?

Thanks!

Brian Walsh



Submitted by Alan - IRA critic on Mon, 2013-06-03 21:26

Here is one from Schwab, http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/ira_calculators/roth_ira_conversion however note the following caveats:

  • No conversion calculator is fully comprehensive with respect to all the variables that should be considered in the decision including minor variables such as whehter you will have LT care insurance, what other assets you have, or the projected tax brackets of your beneficiaries.
  • Many calculators appear to have a bias toward conversions and large conversions at that
  • Client’s attitude about saving vrs spending means more than what Congress does with future tax rates.
  • Converting large amounts at rates higher than marginal rates in retirement is not productive

Submitted by Jeff Moore on Tue, 2013-06-11 21:46

Great answer!

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