conversions
I am 69 ½ years old. Would I still benefit from taking my 401K plan worth $275,000 and rolling it over to a Roth IRA? I do not plan to use this money for the next 5 years.
In other words, should I wait until 70½ and take minimum required distributions and pay tax on the money every year—or pay the tax up front now as a roll-over to a Roth IRA on the total amount of $250,000?
Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2015-08-06 16:40
If you convert a large amount in one year, the taxes on the conversion will be high, probably higher than your RMDs will be taxed if you do not convert. Conversions are beneficial when your current tax rate is less than what you expect your tax rate to be after 70.5 with SS and RMDs counted in. And your current tax rate in more likely to be less if you only convert an incremental amount each year. One popular strategy is to convert only enough to use up your entire 15% bracket. You can determine exactly what the conversion will cost using tax software and comparing your tax bill with and without the conversion. But your tax rate after 70 is a guess using all available data you have. The only thing you know for sure is that the lower your cost for the conversion, the more likely it will be lower than your rate after 70. This is why converting a large amount in a single year is normally not beneficial. You have to analyze all the details of your personal financial situation to answer your question. At least you do know that this is the last year you can convert without also have your RMD included as additional taxable income.