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Jaroman asks:

Pixy, if you are here: how do I calculate the tax I would owe if I converted a traditional to Roth IRA. THe traditional is a combo of deductible and non.
Also, is this tax payable next year when I file? Can I use capital loss carry foward for this tax too?
Do you agree that the only reason to convert would be if I thought my tax rate would be the same or higher upon withdrawals?


Yeah, I'm still here lurking away. And I think Phil Marti provided you an excellent response. DB also pointed out the added burden someone drawing Social Security payments could face. Both replies cover the bases you need to be aware of regarding the tax consequences of conversions.

In general, I would agree that as long as your income tax rate stays the same or will increase in retirement, then a conversion makes sense. It also depends on how long the money stays in the Roth before it's withdrawn to cover living expenses and how one pays the income tax bill at the time of the conversion. If ALL the money in the traditional IRA gets to the Roth and if that money stays there for five years or longer, then a conversion makes sense.

It also makes sense for those who wish to avoid mandatory withdrawals from a traditional IRA at age 70 1/2 so as to preserve tax-deferred growth for heirs/beneficiaries. In the latter case, a Roth is a great estate planning tool for those who do NOT need the IRA money to live on. In fact, paying the income taxes on the traditional IRA before death could have the effect of reducing a potential estate tax as well as eliminating that income tax bill to the heirs. Thus, while in life one's income tax bill could go up as a result of the conversion, at death the overall tax bill (estate AND income) goes down to the family.

Regards..Pixy
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