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Subject:  Re: Roth and Traditional Ira Date:  9/19/1998  9:27 AM
Author:  tc001 Number:  5397 of 127753

Bryan wrote:
>>.... I also like the idea of having 2 different types of Ira's (roth and traditional) so that if the Congress changes the Ira laws in the future one Ira might be better than the other and thus by having both types I am covering my behind in a sense.<<

TMFTaxes replied:
>>As has been pointed out here in the past, many times there are very compelling reasons to convert to a Roth and pay the tax today. But I just believe that way too many people are jumping in without seeing if there is any water in the pool.<<

Roy's point about having compelling reasons to convert (IMO) hits most directly at the Roth advantage in estate planning. My arguement all along has been that most people are pretty sure of what kind of estate they'll leave behind, and for most people it's only wishful thinking that they'll amass a small fortune for their heirs through an IRA, which kills the best reason for the Roth conversion. (I can cover this in another post if you have doubts about why we all won't become rich just because of IRAs.)

So if estate planning isn't your reason for converting, then the "less compelling" reasons come up. The biggest of these is, of course, getting tax-free money in retirement. On Jan. 31, I posted a very lengthy analysis that dampens the widely proclaimed Roth "tax-free" advantage. In short, every analysis I saw at the beginning of the year (when the topic was very hot) failed to recognize that even if you end up with a million dollars or more in your IRA, that alone won't necessarily cost you more in taxes paid with a traditional IRA than what you might save through a Roth. Most calculations ignored some very basic assumptions, which made the Roth look invincible, and I've been whining about it since December. (Thanks for getting me started again, Bryan!)

I agree that the diversification idea (as I have also said before) is appealing. If you can't predict future tax laws, CYA! But the best way for most people to achieve that diversification is to leave traditional IRAs alone and simply put all future contributions into a Roth.
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