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First, let me thank everyone who offered advice in response to my prior post about cashing out a Simple IRA to pay down debt.

I've decided against using it for debt.

What I have now is about $5300 in a Simple IRA at Vanguard. That's from my most recent job. I already have a 401K and Roth IRA at TIAA-CREF, and I like them better than Vanguard. (No fees and a lower expense ratio.)

So I want to move the money from Vanguard to TIAA-CREF.

I'm also strongly inclined to get a Roth IRA, even though that means paying income tax on the money. I really like the idea of tax-free growth, but I admit that my desire is fueled more by emotion than reasoning.

I do expect (hope?) to be in a higher tax bracket at retirement than I am now.

I respect the opinions of those on this board, and if there's a really good reason to choose traditional over Roth, I'd love to read it.
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I'm also strongly inclined to get a Roth IRA, even though that means paying income tax on the money. I really like the idea of tax-free growth, but I admit that my desire is fueled more by emotion than reasoning.

I do expect (hope?) to be in a higher tax bracket at retirement than I am now.

I respect the opinions of those on this board, and if there's a really good reason to choose traditional over Roth, I'd love to read it.


having thought about it for years (since i first opened a Roth in '98)

in my *opinion*, the deciding factor is your 2d para.

but it's difficult to answer..
NO telling what tax rates will be
hard to tell what your income will be
( my bracket is far, far lower because most of my income is SS ..which is largely tax-free.. for NOW )

if your current bracket is very low, then higher-at-retirement is more likely...

my 'suggestion' -- roll it all to t-IRA for now, and near year end, do a tax guesstimate for converting all or part to Roth
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I seem to recall you saying that you would have little or no income tax liability this year. If so, that puts you squarely in the 0% tax bracket. However, you may be getting some refundable credits - child tax credit, EIC, etc.

If that's correct, how would including the income from a Roth conversion affect those credits? You'd need to project your current year tax situation both with and without the conversion. Compare those two situations to see what you might be giving up by doing the conversion.

That becomes the effective tax rate on the conversion. Then you have to guess what your income tax rate might be in retirement.

As has already been suggested, you don't need to make that decision now. You could leave it in the SIMPLE, or roll it into a traditional IRA at TIAA-CREF for now. Then around Thanksgiving time, revisit your projections and see if conversion makes sense. Doing a conversion where both the old and new accounts are at the same institution is much less risky (in terms of delays and "oh !@#$" moments).

Keep in mind that this isn't an all or nothing decision. You can convert whatever portion you want to a Roth IRA. Perhaps the loss of credits would be much less on a smaller conversion. You might run a projection with a conversion of something like $100 to see if there is any amount you can convert at zero tax cost.

Don't forget your state taxes in the planning as well.

--Peter
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There is another factor that rarely gets considered, and that's the favorable tax treatment a Roth IRA gets, compared to a traditional IRA, for your heirs. This is a harder-to-assess aspect than simply running the numbers periodically on the tax effect for you, but it's worth considering, and it might be worth a bit of tax penalty incurred now.

IRS' Pub 590 talks about this.

Eric Hines
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There is another factor that rarely gets considered, and that's the favorable tax treatment a Roth IRA gets, compared to a traditional IRA, for your heirs. This is a harder-to-assess aspect than simply running the numbers periodically on the tax effect for you, but it's worth considering, and it might be worth a bit of tax penalty incurred now.


i agree that's important to consider when retired/older ..

it's large part of why i'm doing partial conversions (and willing to pay a few hundred in taxes)

OP is pretty young though ..so much harder to calculate the value.
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OP is pretty young though ..so much harder to calculate the value.

And just to complicate that calculation, his tax bite today is likely much lower than when he reaches your, or my, august age.

Eric Hines
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OP is pretty young though ..so much harder to calculate the value.
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And just to complicate that calculation, his tax bite today is likely much lower than when he reaches your, or my, august age.


i think in OP's case yes.

but for others the big complication is god only knows what the tax law will be in 20 or 30 yrs






wonder if i'm old enough to be 'august' (feel like i'm November)
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wonder if i'm old enough to be 'august' (feel like i'm November)

I'm probably October but feel like March :-)

George
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OP is pretty young though…

You flatter me! I'm 46.
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OP is pretty young though…

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You flatter me! I'm 46.


no flattery intended <g>

.. for no known reason, thought you were early to mid 30s


46 still young enough that predicting taxes in 20-30 yrs very tricky
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