Roth Conversion
A client called inquiring about a Roth Conversion. He has $ 400,000.00 in a Traditional IRA & $ 900,000.00 in two 401(k)’s. These are all pretax dollars & no after tax dollars.
He is considering converting just $ 200,000.00 from the Traditional IRA. Is there anything we should be considering from a tax point of view other than the taxes due on the converted amount?
Permalink Submitted by Alan - IRA critic on Fri, 2016-02-05 23:38
200k is a large conversion. Perhaps certain conversion strategies should be considered such as splitting this up into multiple conversions to perhaps 3 different Roth accounts. He could then choose to recharacterize starting with the worst performers and retain the best performers. 200k will increase his tax rate and therefore perhaps his total conversions should be smaller. Depends on several variables not known. The most basic conversion strategy is to convert if the tax cost is expected to be lower than in retirement and not convert if higher. If about the same, then perhaps converting a small amount is warranted or nothing. Prediction of rates in retirement depends more on the client and how his financial life goes rather than what happens to tax rates from Washington. Remember that any conversion can be partially or fully recharacterized up to 10/15 of the year following the conversion year if client loses money on a conversion or simply changes his mind about the tax bill.