Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (6) | Ignore Thread Prev | Next
Author: varney Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121568  
Subject: Re: Conversion Quandary Date: 2/21/2000 4:23 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
rjm111 writes:
Am I correct in concluding that my situation (as follows) would not benefit from converting my traditional IRA to a Roth?

IRA balance = $100K. After paying taxes, conversion Roth balance = $80K. Assuming my Foolish plans work out, I want to retire in 15 years at age 55. I am going to assume a 15% percent annual return (I know this is higher than average, but I belive it is most probable given the quality of my port). In 15 years w/o conversion my traditional IRA would be $813,706 and my Roth would be $650,965. Even if I assume that I will be paying 20% cap gains on my traditional IRA in 15 years, the value of these ports would be equal after taxes. The more likely situation is that I will be at 15% tax rate or lower, therefore my traditional IRA would be worth at least $691,000 after tax vs. the tax free $650,695 value of the Roth.


1) As other posters have mentioned, you don't want to convert unless you can pay taxes from non-IRA funds.
2) You won't pay 20% cap gains tax later, because IRA distributions are income, not cap gains.
3) Your tax on the conversion is probably also mis-stated ($20,000) -- my guess is that you applied the 20% cap gains tax to that.
4) If your IRA is your only significant source of income in retirement, remember that you shouldn't look at the marginal rate to determine the tax treatment of your traditional IRA. For example, if your IRA is your only source of income, you won't pay a total of 28% until your withdrawls reach roughly $180,000 (single, standard deduction, today's brackets/rates).

Bruce
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (6) | Ignore Thread Prev | Next

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
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

Economic Implications of Cuba
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.
Advertisement