Thank you for your detailed response.most people consider:
1. is the marginal tax they'll pay on the conversion less than the savings they got when the monies were contributed. In other words, if you're in a lower bracket now then when the money was contributed, it could make sense because you'll pay less tax on the money being converted and got a bigger deduction when the money was contributed. If you're in a higher bracket when converting then when the money was contributed that doesn't make as much sense.
source: https://www.bogleheads.org/wiki/Traditional_versus_Roth
2. consider the amount of tax you'll owe, specifically:
a. will you have the money to pay the tax? Because you don't want to take money out of Roth to pay tax on the conversion.
b. will the amount of the conversion push you into a higher tax bracket? Many figure out how much they can convert that keeps them in the same bracket and only convert that amount, not more.
3. Sometimes people do conversions over many years as a result rather than as a one time thing. There's planning, calculations, etc involved. Don't just do it if you don't understand the tax implications.
4. Also many people do it if they won't need the money in their lifetime and can pass a tax free gift to their kids for instance. That's a benefit. And under current rules your kids can continue to grow the Roth (then an inherited Roth IRA) for 10 years (no RMDs) before withdrawing the money 100% tax free. Pretty sweet. You paid the taxes when the money was converted. Nice gift for them.
5. if you're charitably inclined it's better to donate from tax deferred (or taxable) rather than from Roth.
I'm sure there's some other things people will chime in about, but it's time for dinner.
I appreciate it.
So it is primarily a question of the amount of taxes owed now vs later?
Statistics: Posted by Thelastmileoftheway — Tue Feb 20, 2024 5:28 pm
