Rolling Over Traditional IRA to Roth IRA
We have a 67 year old single female that has no wages. She is interested in rolling over some of her traditional IRA money into a Roth IRA to reduce her Required Mandatory Deductions in the future and make them tax free later in life. Is there an advantage to that at this point in her life? If so would the taxes just be her applicable regular tax bracket on the amount that she withdraws correct?
Permalink Submitted by Alan - IRA critic on Wed, 2013-11-06 03:54
While there are other factors, the main factor in determining if conversion will be beneficial is the tax rate paid for the conversion vrs the expected marginal tax rate in the future. As such, converting too much in a single year will tend to make the conversion taxes too high. Her marginal tax rate will apply to her conversions, and if she is not already paying taxes on 85% of her SS income, conversion will increase taxes on SS causing some of the conversion to be taxed higher than the marginal rate. There might also be some estate benefits in conversion if she is leaving her IRA to someone in a higher tax bracket than she is. If she plans to leave her IRA to charity, it is best not to convert or to convert very little. The short answer then is that conversion may or may not be beneficial in her situation.