UnThreaded | Threaded | Whole Thread (17) | Ignore Thread Prev | Next
Author: elgordo One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76594  
Subject: Re: Roth IRA conversion Date: 12/2/1997 2:59 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
reply to Pixy who wrote:
>>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)
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (17) | Ignore Thread Prev | Next


The Retire Early Home Page
Discussion on accelerating retirement day.
Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Swiss Franc, Obamacare, Education: Common Theme
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.