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|Subject: Re: Still don't know whether to convert to Roth||Date: 6/2/2000 12:05 PM|
|Author: JAFO31||Number: 22324 of 81362|
EditorialWe: Should have been more clear - my income (married filing joint) is not high enough to preclude my converting to a Roth. My back of the envelope estimate for taxes may be too high, but I was figuring state taxes too - ought I?"
"No, I know not what my bracket will be at retirement - higher, lower, or whether I'll be living in a state where the state tax is less punishing than in CA, or possibly non-existent. Which makes prognosticating hard."
Yes. I think the first rule of thumb, is to inquire what ould be the source of the funds to pay the taxes for the conversion? Usually, if you do not have other funds with which to pay the taxes (i.e. must use a portion of the funds be converted, thereby also incurring 10% on those funds - $1700 in your example), it is usually best not to convert.
After that, it becomes an estimation about tax rates (both state and federal, as your surmised) now versus retirement versus conversion at some later date in between.
Either TMFTaxes or TMFPixy has written extensively (a series of articels) about conversion issues; I am sure that the articles must be archived and available somewhere on TMF. I know that TMFTaxes is away for vacation/family reunion, but possibly TMFexRO or TMFPixy can point you in the right direction.
Unfortunately, sometimes you just "pays your money and takes your chances." IOW, You will probably never have perfect information to make this decision.
If you want to really furrow your brow, what happens if you decide to convert, pay our income taxes now and sometime later the income tax is abolished and replaced with a national sales/consumption tax? OUCH. There is a reason that "a bird in hand is worth two in the bush" became a cliche.
Hope this helps. Regards, JAFO
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