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Author: cavaleria One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75793  
Subject: Re: ROTH IRA: to convert or not? Date: 9/4/2000 6:43 PM
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I'm wondering if this conversion is a good idea given her circumstances. If I understand correctly, she'll have to pay taxes (28% bracket) on the IRA she converts but the 10% penalty is waived. Is this correct? Do the advantages of the ROTH make this a worthwhile transaction?

Okay, I'm surprised no one smarter than me has answered this one already, so I'll take a stab at it.

Yes, she will have to enter the $2200 on her 2000 tax form and pay taxes on it at her current rate. The one thing I'm confused on is that you state she has no income, but she will be in the 28% bracket. Is her salary for the rest of 2000 predictable? Or does her interest/investment income from the $290K put her already in the 28% bracket?

As far as it being a good idea or not, that's a judgment call that you have to make. There are a couple of unknowns (that are unknown to ALL of us :-), such as if tax brackets will remain the same till her retirement or change. As far as personal unknowns, there is the question of whether she is in a higher bracket or lower bracket now than when she will retire. Although I'm no expert, I've heard the answer to this question many times and it's typically been,

1. If you're in a lower bracket now than at retirement, do the Roth.

2. If you're in the same bracket now as at retirement, do the Roth.

3. If you're in a higher bracket now than at retirement, keep it traditional.

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