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Subject:  Re: Roth IRA Contriubtions & Conversions Date:  3/5/1999  4:27 PM
Author:  Wavelength Number:  8952 of 88807

ph00lish asked:

<<< Looking for answers!! I have read a lot of data but still confused as to the better road to travel. Have a 100K in a traditional IRA. I am 59 and expect to work another 5years. Currently in 15% tax bracket and will in all likely hood remain there( unless one of you kind souls out there can endow me).Two part question, going forward should my 2k contribution be Roth or traditional and should I convert the existing IRA over to a Roth? I will need to use 15k of the IRA to make the converstion but there would not be an early withdrawal penalty. Hope some fool can help. thanks >>>

TMFPixy gave his usual excellent response. I would add a few things to this however. First, if you converted the entire IRA in one year, you would no longer be in the 15% tax bracket for that year, and would probably need significantly more than $15K to pay the taxes. It doesn't make sense to let the conversion put you in a higher tax bracket than you expect to be upon withdrawal of the IRA. You do not need to convert the entire amount however. If you do convert, the best way to go would be to determine the maximum amount you could add to your current income each year and still stay in the 15% marginal tax bracket, and convert only that amount each year.
As to future contributions, as Pixy pointed out, taxwise it's essentially a wash if you remain in the same tax bracket. I would still go with the Roth, however. First off, I feel that for most people you get more 'bang for the buck' with the Roth. The statement above about it being a wash is only true if you invest the tax savings you get for having a deductable IRA in an investment equivalent to the IRA. I feel strongly that the majority of people fail to do this, causing the Trad. IRA to lose out to the Roth in the long run. Second, the Roth has some excellent features beyond the tax free accumulation of earnings. It does not have the same age limits as the traditional IRA wrt how old you can be and still contribute, or when you must begin manditory withdrawal from your IRA. The Roth is in general much more flexible. I therefore would tend to recommend a Roth over a traditional IRA for all future contributions, for someone in your situation.

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