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At the age of 45 I am resisting advice to convert funds into Roth IRA. Financial advisor promotes the tax "benefit". But who is to guarantee that future governments won't change those tax laws?

Opinions, thoughts solicited.
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At the age of 45 I am resisting advice to convert funds into Roth IRA. Financial advisor promotes the tax "benefit". But who is to guarantee that future governments won't change those tax laws?

Opinions, thoughts solicited.


What's your tax bracket? If it's 25% or higher, I'd resist too because I think I'd pay higher tax rates converting to a Roth. I've explained why a couple times in threads over the last 4-6 weeks here.

-murray
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I agree with Murry, but note that it costs you less to convert when stocks are down. So now could be an especially good time (though last year was even better).

Also keep in mind if you have some low income tax bracket left, its can work to do a series of partial conversions sized to keep from paying high tax rates. But yes, large accounts can take a while to get converted and may not be worth it.

As to changing the law, anything is possible, but with millions of voters participating in the plan, changes to make tax free benefits taxable will not be very popular. I would say other tax increases (such as adding a value added tax) is more likely. That way everyone pays. Not just those who saved for retirement in plans with benefits promised by their politicians.
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At the age of 45 I am resisting advice to convert funds into Roth IRA. Financial advisor promotes the tax "benefit". But who is to guarantee that future governments won't change those tax laws?

Why would you want to pay taxes today instead of 20-30 years from now?

Here's a bit of unsolicited advice: Your "financial advisor" doesn't know jack. I would walk out of his office and never listen to him again.
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but with millions of voters participating in the plan, changes to make tax free benefits taxable will not be very popular

Which somehow didn't prevent Social Security payments from suddenly being taxed beginning in 1987.
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Which somehow didn't prevent Social Security payments from suddenly being taxed beginning in 1987.



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And don't forget about those Medicare "surcharges" which can be caused by [the taxable] withdrawals {including RMDs} from regular [non-Roth] IRAs!


sunray
a man with only Roths
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It is unlikely that Congress will act to take away tax advantages they have already given you. More likely they will reduce or eliminate future benefits, such as reducing or eliminating your contribution amounts or changing the tax laws on contributions after an effective date.

Fuskie
Who expects any politician would find it hard to pass such a law unless they have no expectation of reelection...
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It is unlikely that Congress will act to take away tax advantages they have already given you.

Really? Then how do you explain these:

1) Before 1987(?) SS benefits were not taxed. Logical, since SS is claimed to be insurance. And the money you've paid into SS was taxed going in, so taxing the benefits is taxing the same money twice.

2) It used to be that capital losses would reduce your taxable income, just as capital gains increase it. But then Congress capped the cap-loss reduction at $3000. NOT adjusted for inflation.

3) Likewise for losses in real-estate investments. When that tax advantage was taken away, it absolutley devastated that entire investment class.
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..At the age of 45......But who is to guarantee that future governments won't change those tax laws?...

If you live to be 95 you can be pretty much guaranteed that the tax laws will change dramatically over the next 50 years. That is why having your funds diversified in several different types of accounts would be good to be prepared for unpredictable changes and to give you more flexibility to handle retirement years when you have unusually high expenses.

One possible change is that you may not be eligible to put money into a Roth in the future if they change the rules. This is one reason that it would be good at least some money in Roth accounts now if the rest of your retirement situation is solid.

In addition to tax law changes there can also be dramatic changes in your personal and career situation by the time you retire. A big possible change is that if you are on track to retire with enough money to be in a high tax bracket at 65, then you could likely comfortably retire five or ten years early with a comfortable moderate income and a much lower tax bracket.

For that it is worth I have about 10% of my retirement funds in Roth accounts and the rest in traditional IRAs and 401k's. When I am about five years from retirement and have a clearer picture of my situation I may beef up the money in Roth's then. I may also roll money into a Roth the first few years that I am retired but before I start social security to get more money in a Roth at the lowest tax rate I can if it makes sense then.

Greg
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pauleckler: "As to changing the law, anything is possible, but with millions of voters participating in the plan, changes to make tax free benefits taxable will not be very popular. I would say other tax increases (such as adding a value added tax) is more likely. That way everyone pays. Not just those who saved for retirement in plans with benefits promised by their politicians."

Like FairTax, a consumption tax.

I am on record somewhere on TMG long ago as suggesting that eventually Roth IRAs will eventually be taxed liked non-deductible, traditional IRAs --- amounts contributed will establish basis, withdrawals will be allocated between basis and gain, and gain will constitute ordinaly income.

Regards, JAFO (the cynical)
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A bird in the hand is worth two in the bush. Take the tax deduction now and invest in a regular IRA, expecially if you are older.

The current effort to make it easier to convert a regular to a Roth IRA is a way for the government to get more tax dollars. I'm not sure exactly how this ploy is working.

If you trust bureaucrats to allow your Roth retirement to end up being completely tax free, you just might be a redneck.
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And don't forget about those Medicare "surcharges" which can be caused by [the taxable] withdrawals {including RMDs} from regular [non-Roth] IRAs!


sunray


This is a big point IMO. I am currently paying the Medicare surcharges caused by my RMD withdrawals. At the time I looked at switching into a Roth, it was too late for me and better to keep my taxable IRA. But those surcharges really bug me.

Birgit
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I recently went through a ROTH conversion. There is a standard checklist to determine which option is best given the situation but like anything it has to be evaluated for the individual circumstances. Basically, if the converted funds have time to grow, usually 15 years and there is money available outside the current IRA to pay for the conversion it is advisable. Taxes are at an all time low and its not unrealistic to assume they will go up in the future especially with a large US deficit. This a great tool for estate planning as well as retirement. Roths pass to heirs relatively easily and it is possible to buy unconventinoal assets like real estate through a ROTH. Renting out a property owned by a ROTH means no taxes on that income. This is a great retirement vessel.

All the best
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