Roth conversion
I attended the seminar in Washington last week, and was hoping to see a calculation on the logic of converting to a Roth. I know Ed Slott feels very strongly of converting to a Roth due to a potential of increasing tax bracket. However in 50 years of practice I have seen tax rates go up and down. Also if you assume a 7% return and a 50% tax rate for both federal and State, and one had to pay the tax on the conversion from a side fund, won’t you have more money in the IRA, side fund vs the Roth 15 years down the line. Yes the tax bracket drops to 35% at retirement 15 years down the line, and it would appear that leaving it in the IRA and the side fund accumulation would have been better than the converted amount in a Roth?
Permalink Submitted by Alan - IRA critic on Thu, 2019-08-01 02:15
With no distributions taken after the conversion, the balance of a TIRA and Roth IRA would be the same, but the taxable account from which taxes are paid on the conversion would be considerably less. But you should not be comparing these balances before TIRA distributions are factored in, and that is when the TIRA balance begins to shrink. Still even when viewed with all IRAs cashed in at the LE expectancy of the taxpayer, the total net proceeds after taxes of the IRAs and taxable account would still be higher without the conversion if the tax rate paid on the conversion is 15 pts higher than the average marginal rates on the TIRA distributions.