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Financial Planning / Tax Strategies


Subject:  Re: Should I Convert? Date:  6/19/2011  12:39 PM
Author:  JeanDavid Number:  113531 of 128275

I have read that it's good to have tax diversification, and this makes me think it's safe to have 2 accounts. However, I believe the Roth is superior to the Traditional IRA, so I feel that I should convert. What do you think? Thanks in advance for any feedback.

There is a lot to think about. Let us assume that congress does not change the rules for IRAs and Roth IRAs (an extremely dubious assumption, IMAO). In this case you have to find out if the tax-free returns on your investments will grow fast enough in the Roth IRA to recover the cost of sinking some of the investment in the regular IRA into income tax. So you are going to have to know what your income tax rate will be when you start making minimum required distributions from your regular IRA. Can you pay the income tax from funds not in your IRA?

The next thing I worry about, but you may not, is that they may pass the "Retirement Preservation and Security Act" (I made up the name) that requires you to invest 15% (I made up that number) of your IRA in US treasury bonds, or a government annuity or something. The advantage of making you get a government annuity is that at your death, the government, not your heirs, get any remaining assets of the annuity And you will need to know if they do the same to Roth IRAs as well. They are despairate to raise revenue and with all the money lying around in retirement accounts, what better place to get it? NJ made the state retirement funds invest in NJ bonds, and now the pensionners are screwed. How they got an actuary to sign off on that I cannot imagine. If a state can do it, I assume the feds can do it too.
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