Roth IRA conversion

Jan 14, 2010 6:43 pm

There seems to be no clear cut answer if and when this is beneficial ? Any opinions

Jan 14, 2010 6:45 pm

It seems the break-even point is between 10-12 years.  Wouldn’t recommend it for clients aged 65 or above, depending on the situation of course.  If the market is flat for the next 10-15 years then there really wouldn’t be much, if any benefit.  But who’s to say?

Jan 14, 2010 6:48 pm

That is kind of my point… It seems to be a crap shoot, based on what the market will return… Can’t seem to justify it.

Jan 14, 2010 7:43 pm

Most things in our business are a crap shoot depending on what the market does, aren’t they? 

  I think there are a few benefits beyond the breakeven.  No RMDs.  Some clients have enough in pensions and SS that they really don't want to take an RMD.  And since there are no RMD's they'll more than likely be able to pass more cash on to their benes.  The benes have the same options as with a Traditional IRA, but it's not as big a deal to take the lump sum out all at one time because most of the time there will be no tax bill on the distribution.  Or they can stretch it, like they should, and get tax free income for themselves.   If you're just looking at cash flow break even then it might not be worth it.  If you're looking beyond that, it could be huge.     
Jan 14, 2010 7:48 pm

Good point on the RMD’s, I was gonna mention that but was too lazy.

Jan 15, 2010 1:56 am

I have tried to talk to clients about the Roth conversion but it feels like a waste of time.  Poeple are more concerned about taxes this year than in 20 years.  By the time people really start thinking about tax issues the IRA is 6 figures and the tax hit would be to big.

Jan 15, 2010 2:58 am

Social Security was supposed to be tax free at one time, now up to 85% is taxable to a couple just making $44,000. I could easily see the same thing happening to Roth IRA's in the future as well. (Tax free if your income is under $44,00 or some other ridiculously low amount). Just like the estate tax taxes already taxed income, the government would  have no moral objection to taxing Roths.

Stok
Jan 15, 2010 11:41 am

Three main factors:

  1)Current vs. Future Tax Brackets 2) RMD's 3) Money to pay the taxes   1) To some extent, it can be a math equation.  Will taxes be higher now or in the future?   2)Is this money that will be needed?  If it is not, a Roth can give decades of extra tax free growth.   3) A Roth will ALWAYS be better if the money used to pay the taxes is not money that otherwise would be invested.
Jan 16, 2010 4:34 am

I didn’t realize the new rules, until a client of mine pointed it out,

    "The law includes a special rule for conversions that occur in 2010. For that year only, unless you elect otherwise, income from a conversion will not be reported in 2010, but instead will be reported in two equal installments in 2011 and 2012. The income will be accelerated, however, to the extent you take withdrawals before 2012."
Jan 21, 2010 11:13 pm

I have a couple problems with Roth conversions. The first one is, what is the benefit to the FA? I know that is self centered, but we all need to pay the bills. The other question is what is the real benefit to the client? If I were to convert my own IRA’s to Roth’s, it would cost me about $400k. Even if I had that cash lying around, I believe that the value of that cash(if invested) would grow considerably greater than the cost of taxes in the long run. Particularly in the face of the high probability of higher taxes in the future. So I’d pay $400k in taxes now for the possible future benefit of lower taxes? I just don’t see that as a wise decision.

Jan 21, 2010 11:21 pm

[quote=52new]I have a couple problems with Roth conversions. The first one is, what is the benefit to the FA? I know that is self centered, but we all need to pay the bills. The other question is what is the real benefit to the client? If I were to convert my own IRA’s to Roth’s, it would cost me about $400k. Even if I had that cash lying around, I believe that the value of that cash(if invested) would grow considerably greater than the cost of taxes in the long run. Particularly in the face of the high probability of higher taxes in the future. So I’d pay $400k in taxes now for the possible future benefit of lower taxes? I just don’t see that as a wise decision.[/quote]

If it’s in a Roth, the growth will come out tax-free.  So if you believe that taxes are going to be higher, then the benefit is paying less tax now on the income and NOT paying any tax when you take the money out.

Also, assuming you have approximately $1.2 million in multiple (I think I read that right) IRAs, you can spread that $400k gain over a few years.  In addition, you are technically withdrawing the money when you convert, so you can actually take out the 400k to pay the taxes you owe.

Since we know you are fairly new at Jones, it is unlikely that you are increasing too terribly much the income tax you currently pay.

Now, at your age it might be a bad idea.  But your reasoning is flawed.

Jan 22, 2010 2:06 am
52new:

I have a couple problems with Roth conversions. The first one is, what is the benefit to the FA? I know that is self centered, but we all need to pay the bills. The other question is what is the real benefit to the client? If I were to convert my own IRA’s to Roth’s, it would cost me about $400k. Even if I had that cash lying around, I believe that the value of that cash(if invested) would grow considerably greater than the cost of taxes in the long run. Particularly in the face of the high probability of higher taxes in the future. So I’d pay $400k in taxes now for the possible future benefit of lower taxes? I just don’t see that as a wise decision.

  You're a financial advisor and you can't figure out reasons why a Roth conversion can make sense?
Jan 22, 2010 2:09 am
anonymous:

[quote=52new]I have a couple problems with Roth conversions. The first one is, what is the benefit to the FA? I know that is self centered, but we all need to pay the bills. The other question is what is the real benefit to the client? If I were to convert my own IRA’s to Roth’s, it would cost me about $400k. Even if I had that cash lying around, I believe that the value of that cash(if invested) would grow considerably greater than the cost of taxes in the long run. Particularly in the face of the high probability of higher taxes in the future. So I’d pay $400k in taxes now for the possible future benefit of lower taxes? I just don’t see that as a wise decision.

  You're a financial advisor and you can't figure out reasons why a Roth conversion can make sense?[/quote]

He's a new Jones broker.
Jan 22, 2010 2:14 am

I’m confused.  “$400k in taxes now” - does that mean $400,000.00? 

Jan 22, 2010 2:18 am
Moraen:

[quote=anonymous][quote=52new]I have a couple problems with Roth conversions. The first one is, what is the benefit to the FA? I know that is self centered, but we all need to pay the bills. The other question is what is the real benefit to the client? If I were to convert my own IRA’s to Roth’s, it would cost me about $400k. Even if I had that cash lying around, I believe that the value of that cash(if invested) would grow considerably greater than the cost of taxes in the long run. Particularly in the face of the high probability of higher taxes in the future. So I’d pay $400k in taxes now for the possible future benefit of lower taxes? I just don’t see that as a wise decision.

  You're a financial advisor and you can't figure out reasons why a Roth conversion can make sense?[/quote]

He's a new Jones broker.
[/quote]     Exactly. When I was in my first year or so at Jones I thought Bond Fund of America was a diversified bond holding. I also thought laddering Principal, Prudential and CIT bonds was safe. Talk about scary. Where was FSD when I was making those moves ?
Jan 22, 2010 2:20 am

[quote=mlgone]ok I get the Roth argument…but isn’t anyone worried that the gov’t will repeal the tax free growth in 10 years when we are a big mess debt wise? I would be worried? I know there would be a revolt but do we trust the tax status to the future?[/quote]

I don’t think the politicians are that imaginative.  More likely they would establish rules that only people who are on welfare can contribute to a Roth, but i fyou already have one, you are ok.

Jan 22, 2010 12:06 pm

[quote=iceco1d]

[quote=Moraen]

[quote=52new]I have a couple problems with Roth conversions. The first one is, what is the benefit to the FA? I know that is self centered, but we all need to pay the bills. The other question is what is the real benefit to the client? If I were to convert my own IRA’s to Roth’s, it would cost me about $400k. Even if I had that cash lying around, I believe that the value of that cash(if invested) would grow considerably greater than the cost of taxes in the long run. Particularly in the face of the high probability of higher taxes in the future. So I’d pay $400k in taxes now for the possible future benefit of lower taxes? I just don’t see that as a wise decision.[/quote]

If it’s in a Roth, the growth will come out tax-free.  So if you believe that taxes are going to be higher, then the benefit is paying less tax now on the income and NOT paying any tax when you take the money out.

Also, assuming you have approximately $1.2 million in multiple (I think I read that right) IRAs, you can spread that $400k gain over a few years.  In addition, you are technically withdrawing the money when you convert, so you can actually take out the 400k to pay the taxes you owe.

Since we know you are fairly new at Jones, it is unlikely that you are increasing too terribly much the income tax you currently pay.

Now, at your age it might be a bad idea.  But your reasoning is flawed.
[/quote]

If someone is under 59 1/2, and they pull money out to pay the taxes they owe for the conversion, they will the 10% tax penalty on the amount withdrawn.
[/quote]

Right.  So, $40k in his case.  But it doesn’t really make much sense for him anyway, since he’s so old.

Jan 23, 2010 8:32 pm

Hold on! If you use IRA money to pay income tax on the Roth conversion, you pay income tax plus a 10% penalty. So you don’t have that money to invest. So you are paying tax and a penalty; or taking cash from somewhere else, and paying tax. I still believe that you are better off growing the money in an IRA and living with the tax consequences. Otherwise, you are paying a bunch of tax with expensive dollars now, losing the growth potential of that money, all for the possibility of having lower taxes when you retire. For a 50+ year old with a seven figure plus IRA, I think it’s a bad choice. I’m not being argumentative. I really don’t see the value.

Jan 23, 2010 8:41 pm
anonymous:

[quote=52new]I have a couple problems with Roth conversions. The first one is, what is the benefit to the FA? I know that is self centered, but we all need to pay the bills. The other question is what is the real benefit to the client? If I were to convert my own IRA’s to Roth’s, it would cost me about $400k. Even if I had that cash lying around, I believe that the value of that cash(if invested) would grow considerably greater than the cost of taxes in the long run. Particularly in the face of the high probability of higher taxes in the future. So I’d pay $400k in taxes now for the possible future benefit of lower taxes? I just don’t see that as a wise decision.



You’re a financial advisor and you can’t figure out reasons why a Roth conversion can make sense?[/quote]



Then show me. Assume an IRA valued at 1.5 million, with a cost basis of 250,000. Age 55. 28% tax rate. How much to convert? The time value of that convert money if invested with an 8% annual return? The present value of the tax savings of a 5% withdrawl taken starting at 65 if the conversion is made? Go ahead and do the figures and prove to me that a conversion is in my best interest.
Jan 24, 2010 2:00 pm
52new:

[quote=anonymous] [quote=52new]I have a couple problems with Roth conversions. The first one is, what is the benefit to the FA? I know that is self centered, but we all need to pay the bills. The other question is what is the real benefit to the client? If I were to convert my own IRA’s to Roth’s, it would cost me about $400k. Even if I had that cash lying around, I believe that the value of that cash(if invested) would grow considerably greater than the cost of taxes in the long run. Particularly in the face of the high probability of higher taxes in the future. So I’d pay $400k in taxes now for the possible future benefit of lower taxes? I just don’t see that as a wise decision.

 

You’re a financial advisor and you can’t figure out reasons why a Roth conversion can make sense?[/quote]



Then show me. Assume an IRA valued at 1.5 million, with a cost basis of 250,000. Age 55. 28% tax rate. How much to convert? The time value of that convert money if invested with an 8% annual return? The present value of the tax savings of a 5% withdrawl taken starting at 65 if the conversion is made? Go ahead and do the figures and prove to me that a conversion is in my best interest.[/quote]

Why the hell would the cost basis matter in an IRA?

You said you weren’t sold on them.  For you, it might not make sense.  For people half your age, it might.

A successful financial advisor looks at his clients’ needs from their perspective, not his.
Jan 25, 2010 4:46 pm

Then what are the metrics you use to determine the value of conversion?

Jan 25, 2010 4:50 pm

[quote=52new]Then what are the metrics you use to determine the value of conversion?[/quote]

It’s the amount in the account at the time of conversion. 

52 are you really a broker or are you an investor trolling for free advice?

Jan 25, 2010 8:05 pm

[quote=52new] [quote=anonymous] [quote=52new]I have a couple problems with Roth conversions. The first one is, what is the benefit to the FA? I know that is self centered, but we all need to pay the bills. The other question is what is the real benefit to the client? If I were to convert my own IRA’s to Roth’s, it would cost me about $400k. Even if I had that cash lying around, I believe that the value of that cash(if invested) would grow considerably greater than the cost of taxes in the long run. Particularly in the face of the high probability of higher taxes in the future. So I’d pay $400k in taxes now for the possible future benefit of lower taxes? I just don’t see that as a wise decision.[/quote]

 
You're a financial advisor and you can't figure out reasons why a Roth conversion can make sense?[/quote]

Then show me. Assume an IRA valued at 1.5 million, with a cost basis of 250,000. Age 55. 28% tax rate. How much to convert? The time value of that convert money if invested with an 8% annual return? The present value of the tax savings of a 5% withdrawl taken starting at 65 if the conversion is made? Go ahead and do the figures and prove to me that a conversion is in my best interest.[/quote]   There are plenty of times that it doesn't make sense.  Your example may be one of those times, but the question needs to be whether there are times that it does make sense.   You need to be able to understand that and it should be really simple for you to come up with scenarios where it does make sense.  If you can't, you don't understand the subject well enough. 
Jan 25, 2010 10:12 pm

If the conversion doesn’t make sense for one demographic, I usually need some proof that it makes sense for another. The assumption that a Roth conversion makes more sence for a younger investor is based,I believe, on the smaller tax consequences of the conversion and the greater probability of finding the cash (to pay the tax) outside of the IRA in order to prevent the tax + 10% penalty. However, the future value of the tax and penalty is a significant amount of money. In recommending a conversion we’re assuming a higher tax rate 30 or so years from now, no change in Roth tax standings for 30 or so years, and no super-bull market(that would greatly increase the value of the cash if not spent on taxes). Some of the simplistic assumptions I have read here don’t seem to take any of these into consideration. So, again. How do you determine the real value of a Roth conversion?

Jan 25, 2010 10:14 pm
52new:

If the conversion doesn’t make sense for one demographic, I usually need some proof that it makes sense for another. The assumption that a Roth conversion makes more sence for a younger investor is based,I believe, on the smaller tax consequences of the conversion and the greater probability of finding the cash (to pay the tax) outside of the IRA in order to prevent the tax + 10% penalty. However, the future value of the tax and penalty is a significant amount of money. In recommending a conversion we’re assuming a higher tax rate 30 or so years from now, no change in Roth tax standings for 30 or so years, and no super-bull market(that would greatly increase the value of the cash if not spent on taxes). Some of the simplistic assumptions I have read here don’t seem to take any of these into consideration. So, again. How do you determine the real value of a Roth conversion?

  It sounds like you're talking all or nothing.  Why don't you convert a portion that way you'll be right and you'll be wrong.  Diversify.
Jan 25, 2010 11:05 pm
snaggletooth:

[quote=52new]If the conversion doesn’t make sense for one demographic, I usually need some proof that it makes sense for another. The assumption that a Roth conversion makes more sence for a younger investor is based,I believe, on the smaller tax consequences of the conversion and the greater probability of finding the cash (to pay the tax) outside of the IRA in order to prevent the tax + 10% penalty. However, the future value of the tax and penalty is a significant amount of money. In recommending a conversion we’re assuming a higher tax rate 30 or so years from now, no change in Roth tax standings for 30 or so years, and no super-bull market(that would greatly increase the value of the cash if not spent on taxes). Some of the simplistic assumptions I have read here don’t seem to take any of these into consideration. So, again. How do you determine the real value of a Roth conversion?



And what value does the FA derive from such a conversion, a new $40 IRA fee?

It sounds like you’re talking all or nothing. Why don’t you convert a portion that way you’ll be right and you’ll be wrong. Diversify.[/quote]
Jan 25, 2010 11:13 pm

[quote=52new] [quote=snaggletooth] [quote=52new]If the conversion doesn’t make sense for one demographic, I usually need some proof that it makes sense for another. The assumption that a Roth conversion makes more sence for a younger investor is based,I believe, on the smaller tax consequences of the conversion and the greater probability of finding the cash (to pay the tax) outside of the IRA in order to prevent the tax + 10% penalty. However, the future value of the tax and penalty is a significant amount of money. In recommending a conversion we’re assuming a higher tax rate 30 or so years from now, no change in Roth tax standings for 30 or so years, and no super-bull market(that would greatly increase the value of the cash if not spent on taxes). Some of the simplistic assumptions I have read here don’t seem to take any of these into consideration. So, again. How do you determine the real value of a Roth conversion?[/quote]

 
And what value does the FA derive from such a conversion, a new $40 IRA fee?
It sounds like you're talking all or nothing.  Why don't you convert a portion that way you'll be right and you'll be wrong.  Diversify.[/quote] [/quote]   You are too thick-headed to have a real conversation about this.  If the only thing you can say to diversifying a pool of money to not pay taxes on in the future is that the FA will charge a new $40 fee, then I feel sorry for some of your clients that might find the strategy beneficial.  You choosing what they will/won't hear is a lot different than providing them the choice.   You don't have a crystal ball and your assumptions could be way off.
Jan 25, 2010 11:19 pm
snaggletooth:

[quote=52new] [quote=snaggletooth] [quote=52new]If the conversion doesn’t make sense for one demographic, I usually need some proof that it makes sense for another. The assumption that a Roth conversion makes more sence for a younger investor is based,I believe, on the smaller tax consequences of the conversion and the greater probability of finding the cash (to pay the tax) outside of the IRA in order to prevent the tax + 10% penalty. However, the future value of the tax and penalty is a significant amount of money. In recommending a conversion we’re assuming a higher tax rate 30 or so years from now, no change in Roth tax standings for 30 or so years, and no super-bull market(that would greatly increase the value of the cash if not spent on taxes). Some of the simplistic assumptions I have read here don’t seem to take any of these into consideration. So, again. How do you determine the real value of a Roth conversion?

And what value does the FA derive from such a conversion, a new $40 IRA fee?

It sounds like you’re talking all or nothing. Why don’t you convert a portion that way you’ll be right and you’ll be wrong. Diversify.[/quote] [/quote]



You are too thick-headed to have a real conversation about this. If the only thing you can say to diversifying a pool of money to not pay taxes on in the future is that the FA will charge a new $40 fee, then I feel sorry for some of your clients that might find the strategy beneficial. You choosing what they will/won’t hear is a lot different than providing them the choice.



You don’t have a crystal ball and your assumptions could be way off.[/quote]

I guess that you don’t have a clue. You call me thick-headed, but can’t provide a benefit. I’ll just assume that you don’t know why you are doing Roth conversions, and are just doing it because everyone else is. I’m glad you’re not my FA.
Jan 25, 2010 11:26 pm

[quote=52new] [quote=snaggletooth] [quote=52new] [quote=snaggletooth] [quote=52new]If the conversion doesn’t make sense for one demographic, I usually need some proof that it makes sense for another. The assumption that a Roth conversion makes more sence for a younger investor is based,I believe, on the smaller tax consequences of the conversion and the greater probability of finding the cash (to pay the tax) outside of the IRA in order to prevent the tax + 10% penalty. However, the future value of the tax and penalty is a significant amount of money. In recommending a conversion we’re assuming a higher tax rate 30 or so years from now, no change in Roth tax standings for 30 or so years, and no super-bull market(that would greatly increase the value of the cash if not spent on taxes). Some of the simplistic assumptions I have read here don’t seem to take any of these into consideration. So, again. How do you determine the real value of a Roth conversion?[/quote]

 And what value does the FA derive from such a conversion, a new $40 IRA fee?
It sounds like you're talking all or nothing.  Why don't you convert a portion that way you'll be right and you'll be wrong.  Diversify.[/quote] [/quote]
 
You are too thick-headed to have a real conversation about this.  If the only thing you can say to diversifying a pool of money to not pay taxes on in the future is that the FA will charge a new $40 fee, then I feel sorry for some of your clients that might find the strategy beneficial.  You choosing what they will/won't hear is a lot different than providing them the choice.
 
You don't have a crystal ball and your assumptions could be way off.[/quote]
I guess that you don't have a clue. You call me thick-headed, but can't provide a benefit. I'll just assume that you don't know why you are doing Roth conversions, and are just doing it because everyone else is. I'm glad you're not my FA.[/quote]   Hey qweef face, I know EXACTLY why I'm doing some Roth conversions in certain situations.  Obviously I feel tax rates are likely to go higher.  Obviously some of my clients don't want RMD's on all their money.  Obviously diversifying out qualified money for clients who have virtually no NQ money so that a portion of their retirement income can be tax free is important to some.  Obviously some of my clients have cash on the sidelines, so they can pay the taxes in 2011 and 2012 with money that isn't in the market allowing the FULL value of their IRA to continue to grow.  Obviously some of my clients want to leave potentially more money to their family since tax rates in the future are unknown. 
Jan 25, 2010 11:40 pm

Qweef face? Is that a good or bad thing? I’ll bet your clients must really enjoy your temperment. With respect to Roth conversions, I believe that they are being considered for political reasons rather than economic ones. You gave some compelling reasons for converting. But they are all generalizations. People are afraid of future tax increases, so they are willing to spend money now in order to have lower taxes later. But no metrics are provided. At what future tax rate will the time value of money invested now be negated?

Jan 25, 2010 11:53 pm
52new:

Qweef face? Is that a good or bad thing? I’ll bet your clients must really enjoy your temperment. With respect to Roth conversions, I believe that they are being considered for political reasons rather than economic ones. You gave some compelling reasons for converting. But they are all generalizations. People are afraid of future tax increases, so they are willing to spend money now in order to have lower taxes later. But no metrics are provided. At what future tax rate will the time value of money invested now be negated?

  Of course they are generalizations.  I'm guessing you are left-brained and suffering from analysis paralysis.  This whole thing is based on a generalization.  It's a simple bet like the come/don't come bet.  Either taxes will be higher, the same, or lower...pick a team.   There is simply no way to know what future tax rates are going to be.  My beliefs are different from yours, which is fine.  However, the fact of the matter is that "Roth IRA Conversions" is one of the top financial terms put into Google.  So people are curious about them.  You are choosing to not show it to your clients at all.  I don't believe you know anything more about Roth IRA conversions and if it's the right thing to do or not than anyone else one this forum, myself included.
Jan 26, 2010 1:02 am

You are wasting your breath snags, he’s hunting for free advice.

Incidentally, I just wrote a spreadsheet that will allow you to plug numbers in to see if the Roth conversion is right, both based on your beliefs of what taxes are likely to be, and what they are now.

Guess what?  It depends!  What are your clients’ goals?  Do they have pension and possibly don’t need the IRA money, but are going to be forced to take RMD’s?  Are they in bad health and likely to die soon?

Do they only have $10k in their IRA?  Do they already have a Roth with significant assets in it, and by combining both of them the power of compounding would be greater than if the money stayed in the Traditional IRA?

I can’t believe I just did that, although I guess it can be useful.  If anybody uses Numbers, I’ll email the template.


Jan 26, 2010 1:06 am
52new:

If the conversion doesn’t make sense for one demographic, I usually need some proof that it makes sense for another. The assumption that a Roth conversion makes more sence for a younger investor is based,I believe, on the smaller tax consequences of the conversion and the greater probability of finding the cash (to pay the tax) outside of the IRA in order to prevent the tax + 10% penalty. However, the future value of the tax and penalty is a significant amount of money. In recommending a conversion we’re assuming a higher tax rate 30 or so years from now, no change in Roth tax standings for 30 or so years, and no super-bull market(that would greatly increase the value of the cash if not spent on taxes). Some of the simplistic assumptions I have read here don’t seem to take any of these into consideration. So, again. How do you determine the real value of a Roth conversion?

  52new, I really enjoy helping people whether it is clients or other advisors.  However, the fact that you can't think of any scenario in which a conversion would make sense and need proof from someone else does not bode well for you and your clients.  The fact is that they make sense in lots of situations.    I'll give you one, but there are lots.   Your client is financially secure, but he got laid off from his job this year.  He's going to take advantage of that fact and bum around and spend time with his family.  His tax situation will allow him to convert $100,000 and still not pay any taxes on the conversion.   Here's a hint for many other scenarios: RMD RMD RMD RMD    Do you have any clue how many extra years of tax deferred/tax free growth can occur because of the lack of an RMD with a Roth?  
Jan 26, 2010 6:43 pm

anonymous, It’s not that I can’t think of scenarios for a Roth conversion. As I do my yearly reviews, I am looking at current IRA’s. And I may recommend some conversions. I am just very reluctant to blindly accept a conversion, which usually requires a considerable amount of cash for taxes, all for the purpose of saving taxes later. In a way it reminds me of the tax shelters popular in the 70’s, bought for tax saving purposes yet having little investment value. We are suggesting customers take money that could be invested and using it to prepay future taxes. It’s still very counterintuitive to me.

Jan 26, 2010 7:05 pm

You are the one who said that you have some problems with Roth conversions.  Nobody here has ever said that one should convert blindly.  The point needs to be that every situation is different.  Like most everything else, conversions are neither bad nor good.  They are appropriate or inappropriate based upon the situation.

  Also, be careful about turning everything into a math equation.   We live in the real world and not a text book.  Textbook: Jim is in a 28% tax bracket now and will always be in one.    He is deciding between a deductible IRA and a Roth IRA.  From a math standpoint, they are identical.  Real world:  If you don't twist Jim's arm behind his back, he won't invest the tax savings of his deductible IRA.  Therefore, both will give the same rate of return, but he'll have more money in retirement if he does a Roth.
Jan 26, 2010 7:08 pm

[quote=anonymous] You are the one who said that you have some problems with Roth conversions. Nobody here has ever said that one should convert blindly. The point needs to be that every situation is different. Like most everything else, conversions are neither bad nor good. They are appropriate or inappropriate based upon the situation.



Also, be careful about turning everything into a math equation. We live in the real world and not a text book. Textbook: Jim is in a 28% tax bracket now and will always be in one.    He is deciding between a deductible IRA and a Roth IRA. From a math standpoint, they are identical. Real world: If you don’t twist Jim’s arm behind his back, he won’t invest the tax savings of his deductible IRA. Therefore, both will give the same rate of return, but he’ll have more money in retirement if he does a Roth.[/quote]



Good point. Thanks.