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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75776  
Subject: Re: considerations in converting to roth Date: 10/12/2009 11:37 PM
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The main advantage of the Roth is that no taxes will be due on your investment gains in the account, and you hope that those will be substantial. So conversion should save you considerable amounts assuming your investments do as well as you hope.

This is false logic. Yes, you would pay more dollars in taxes by taking it out of a traditional IRA, but the amount left in your pocket will be the same assuming equal tax rates.

Consider $1000 converted. Paying 25% now will leave you with $750. Assuming it grows to 10 times it's current value in a Roth, you'll have $7,500.

Leave it in a traditional IRA and $1000 grows to $10,000. Pay 25% and you have exactly the same $7500.

Personally, I wouldn't convert. If you're like me, you have no pension and any income you get will be from IRA withdrawals and other investments.

At today's tax rates, HR Block says you'll pay $14,400 in taxes on $110k of income with no deductions or 13% marginal tax rate. If a retired person took $110k out of a traditional IRA today with no other income, they would only pay $14,400 in taxes while the OP would be paying at least 25% x $110k or $27,500 in taxes or nearly twice as much.

I wrote a more detailed example of how you could end up with less money in your pocket by converting to a Roth here: http://boards.fool.com/Message.asp?mid=26499081

Personally, I would keep the traditional IRA and direct extra cash towards a Roth.

-murray
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