Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 2
I was asking if I should convert to Roth now or later. I am going to fund this account fully every year (I hope), so if I decide to convert later, I will have to pay more taxes on it, as I understand it.

Let's talk about a few basic rules. Contributions and conversions are completely separate. Thus, if you qualify for Roth contributions you can do that based on current (and even 2006 through 4/17/2007) earnings regardless of any conversions.

Second, there's no "all or nothing" rule about Roth conversions. As long as your income (without the Roth conversion income) is under $100,000 and you don't file married, filing separately you can convert $1.00 or every penny in your traditional IRA accounts, including rollovers.

In your original post you said you were in the 18% bracket. Does that include state? If not, you really should nail things down. The Federal brackets now go from 15% to 25% with no intermediate point.

I mention this because I think it would be good to convert as much of your traditional IRA to Roth that would take you to the top of the 15% bracket. This assumes that you have the cash outside retirement accounts to pay the taxes. If you're in the 25% or above Federal bracket, conversion is much more of a crap shoot. It involves a lot of crystal ball gazing to look at your compared current vs. retirement tax rates.

Phil
Print the post  

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.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! 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.