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>>If you assume the same rate of return in both the regular and Roth IRA and the same tax rate now and
later, there is no difference between converting or standing pat.<<

This does not appear to be true if the taxes on the conversion are paid out of other non-tax protected souces. Assume a \$10,000 IRA, a 10% annual return, a 10 yr holding period and a 28% tax rate. If I stand pat, I get:

\$10,000 @ 10%, 10yrs = \$25,937 - \$7,262 (28% taxes) = \$18,675.

If I convert and pay the taxes from another source, I get:

\$10,000 @ 10%, 10 yrs = \$25,937 - \$2,800 (taxes from other source) = \$23,137. From this I should also subtract the opportunity cost for the \$2,800 which, if it is entirely capital gains would be taxed at 20%. So \$2,800 @ 10%, 10yrs = \$7,262 - \$2,800 = \$4,462 (gain) - \$ 892 (20% taxes) = \$3,570. So \$23,137 - \$3,570 = \$19,567 or an increase of \$892.

Am I missing something here?

elgordo (the Fat Fool)

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