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Author: desanti Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19483  
Subject: info on article by tmf pixie Date: 11/15/2001 7:22 PM
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i am retired and 70.3years old.i have a 401k of 340,000 dollars and i have ira(s) of about 85,000 dollars.i live on my pension and social security and have no need for a distribution in the future(if all remains the same).i have no deductions to speak of(property tax,contributions,health etc.).i could pay the taxes due on the 401 and the ira's.should i convert to roth?? thanks.p.s. my tax bracket is about
22 per cent of adjusted income.state and federal.thanks again.
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Author: peppermintpatty Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7506 of 19483
Subject: Re: info on article by tmf pixie Date: 11/16/2001 8:16 AM
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desanti asks -

"i am retired and 70.3years old.i have a 401k of 340,000 dollars and i have ira(s) of about 85,000 dollars.i live on my pension and social security and have no need for a distribution in the future(if all remains the same).i have no deductions to speak of(property tax,contributions,health etc.).i could pay the taxes due on the 401 and the ira's.should i convert to roth?? thanks.p.s. my tax bracket is about
22 per cent of adjusted income.state and federal.thanks again."

When you ask if you should convert to Roth, I ask why? What are you trying to accomplish? I guess I don't see much use in converting IRA to Roth just for its own sake! Perhaps if you consider what goals you may have (i.e. estate planning, legacy, etc.) you'll be better able to determine what to do with surplus (retirement) funds.

Regards, PP

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7507 of 19483
Subject: Re: info on article by tmf pixie Date: 11/16/2001 9:40 AM
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Greetings, Desanti, and welcome. You wrote:

i am retired and 70.3years old.i have a 401k of 340,000 dollars and i have ira(s) of about 85,000 dollars.i live on my pension and social security and have no need for a distribution in the future(if all remains the same).i have no deductions to speak of(property tax,contributions,health etc.).i could pay the taxes due on the 401 and the ira's.should i convert to roth?? thanks.p.s. my tax bracket is about
22 per cent of adjusted income.state and federal.thanks again.


As Peppermintpatty pointed out, there is no pat answer anyone can provide without knowing your goals. Even then, you would have to run some numbers based on your personal information to see what may be best from you.

One approach seeing as you don't seem to require the money to live on is to see what paying the taxes today (or even over the next few years) does to the tax family as a whole. That means to you while living and to your heirs after you're gone. You'll have to look at your tax bracket as well as theirs. It makes no difference who ends up with the 401k/IRA proceeds, you or them. Either of you must pay ordinary income taxes on any money not taxed before whenever that money comes out of the 401k/IRA.

That being the case, and especially when you yourself don't need the money to live on, could make it a smart move to do the conversion now so you your heirs can get it tax-free later after it has grown through the years. The only way to see if that might be true in your case is to run some numbers over several different alternatives on how you might make the conversion(s), how long you will live, and your/their marginal income tax rates now and when you die. Don't forget that you must declare the income in the year a conversion takes place, so that could very well push you into a higher marginal federal and state income tax bracket, so account for that in your calculations as well.

Bottom line: You gotta run the numbers based on your goals and your specific situation. We can't give you a better answer than that on these boards.

Regards..Pixy

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7508 of 19483
Subject: Re: info on article by tmf pixie Date: 11/16/2001 7:33 PM
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There's a lot to consider. Will your estate be taxed? are you married? What is your *tax bracket*, not your average tax rate? what tax bracket will your heirs be in? your 22% figure indicates you must be in the 27% tax bracket, which is the minimum tax rate you'll pay for any withdrawal of the funds. and you must start withdrawing some this year.
Understand that these funds grow tax free but when withdraw they normally are taxed at ordinary tax rates to whoever withdraws them. If they are taxed in your estate and then again when withdrawn, that's a bummer, so often it is advantageous for you to withdraw them, pay the tax, and reinvest in a Roth, or just a tax managed index fund, or tax free bonds. Your heirs may have to liquidate them suddenly (throwing them into an even higher bracket) just to pay estate taxes.

An alternative to consider is a Lump Sum Distribution on the 401k plan on form 4972. you would pay $79,295 tax on the $340,000, which is a tax rate of 23 1/2%. If you withdrew them in the normal manner it would be at your tax bracket of 27%. You would then invest the remaining $260,705, give it away in $10,000 bunches, whatever. It's that much less to be taxed in your estate and your heirs won't be stuck with income taxes on the $340,000.

This may not be your cup of tea, but you should know it exists. Did pixy mention in the article you read? ed

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Author: RGOLDPET Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7515 of 19483
Subject: Re: info on article by tmf pixie Date: 11/19/2001 8:14 PM
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Pixy, this question may be too basic but here it is. My birthdate was in July 1933. What is the latest date when must I start a distribution?
Thanks Ralph G.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7519 of 19483
Subject: Re: info on article by tmf pixie Date: 11/20/2001 6:20 AM
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Ralph G asks:

Pixy, this question may be too basic but here it is. My birthdate was in July 1933. What is the latest date when must I start a distribution?

No question to which one doesn't know the answer is too basic, particularly in this area.

You will be 70 1/2 sometime in January 2004, so tax-year 2004 will be the first year for which you must take a minimum distribution. That distribution must be withdrawn no later than April 1, 2005. If you wait that long to do so, though, you must take your second distribution for tax-year 2005 by December 31 of that year as well. That would give you two taxable distributions in the same year, something you probably don't want.

Regards..Pixy


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Author: RGOLDPET Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7520 of 19483
Subject: Re: info on article by tmf pixie Date: 11/20/2001 5:03 PM
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Thank you Pixy. Your posts on this forum are a font of knowledge. My income for 2005 will be lower by a lot than any year up to then so I am happy to hear that taxable distibutions can wait that long. Thank You

Ralph G.

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