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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75530  
Subject: Re: considerations in converting to roth Date: 11/29/2009 10:43 AM
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Maybe not.

Certainly yes.

They're paying NO tax now. How can you pay less than that? They would indeed have been better off converting less of their IRA to a Roth. Now it is possible that they took advantage of some situation earlier in their working life that allowed them to convert their traditional IRA to Roths at little or no tax. If that were the case, then they are no worse off for having done so.

As long as the tax code has personal exemptions, a standard deduction, and graduated tax rates, everyone will want to have some income subject to tax in retirement. Those bits of tax code cause income that would normally be tax to become tax free or taxed at low rates. And that means NOT converting all of your retirement savings into Roth accounts. If all you have to retire on is your Roth IRA, you have overpaid your taxes earlier in life.

As I understand it, when you get to 70 1/2, you MUST take out a certain percent of a regular IRA every year whether you want/need to or not,

Correct. The first required withdrawal is less than 4% of the balance in your IRA. On a $1 million IRA account, that's less than $40k. If that's your only source of taxable income and we're talking about a married couple, that's barely enough to get them into the 15% bracket.

So they can save that ROTH money for the later years when their costs might be significantly higher due to medical costs,

Except that medical costs are tax deductible (to some extent). That's when you WANT to take the taxable money out - when you have tax deductible medical expenses that can offset the taxable income.

or they can just enjoy the option of taking more or less out each year as they see fit without the feds telling them how much they MUST take out....

RMDs are nothing to be afraid of. They just aren't that big. The first RMD is less than 4%. They get to 5% at age 79, and 10% at age 93. If you ask me, they just aren't that big.

--Peter
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