Should I convert my I.R.A. to a Roth I.R.A.?
I took a beating this year and heard that it's a good strategy
Answers
474 points
spider348 answered one year ago …
A loaded question - really depends on your situation. I have a Roth and your question caused me to think about it a bit.
I went to:
http://en.wikipedia.org/wiki/Roth_ira
- they have a great breakdown of pros/cons of IRA vs. Roth. Check it out.
105 points
TerryS answered one year ago …
The answer depends totally on your personal tax situation. In my case, I am in the 25% tax bracket and have some liquid assets in after tax accounts. By converting part of my IRA to a Roth each year to take my taxable income to the top of the 25% bracket, I will be able to drop my taxable income into the 15% bracket, while maintaining the same spendable income by taking tax free withdrawals from the Roth. An additional advantage is releiving my heirs of the tax liablity of the IRA.
Read more from TerryS2775 points
Oldman answered one year ago …
If you're eligible (MAGI <100K, joint) then the next question is, can you pay the increase in marginal taxes from funds outside of the tax shelter. TerryS has touched on this. Another question is "why not wait until 2010" {when MAGI won't be a hindrance)...and the answer is - even with 50% being taxed in 2011, and 50% of the conversion being taxed in 2012, the tax rates will probably be substantially higher after 2010.
So right now when the value of the shelter is at a minimum, and the tax rates are known, might be a good opportunity. Some, who did it earlier this year, at higher valuations, have recharacterized, and will convert again at a lower valuation (and lower tax burden)...but the MAGI still stands.
If you are currently taking minimum required distributions from the shelter(s)...remember those withdrawals, while a part of your AGI for taxation, DO NOT COUNT towards the MAGI total (i.e., your total MRD's are 20 K and your other total income (taxable and nontaxable muni interest included) is 81 K....AGI is 101k, but MAGI is 81 K, so a conversion is possible.
A Roth allows withdrawals of tax-free nature 5 years from initiation, counting from the Jan. 1 of the year of conversion, even if the conversion occurred in December of year 1...and there aren't requirements for minimum required distributions at any age...but heirs have a few hoops to jump throught to avoid withdrawal requiements, paricularly non-spousal heirs.
106 points
