Advice on a retired person converting from a traditional IRA to a Roth?
Thursday, April 15th, 2010 at
11:15 pm
I have a traditional IRA (about 40K) that I am thinking of converting to a Roth IRA. I am retired and about 3 years away from mandatory IRA withdrawals. Knowing full well that I will take a tax hit if I do this, is it a good idea to do this and just let the money grow tax free or should I just steel myself to mandatory yearly withdrawals at age 70 1/2, I can afford the tax hit and my taxable income in 2007 was approx 37K. Thx
Filed under: Contributions To Self Directed IRA
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If you have the money in non-tax deferred accounts to pay the taxes on the Roth conversion, then go ahead and make the conversion to the Roth. Don’t convert more than what would put you into the 28% bracket.
According to the Motley Fool:
You can find Roth IRA conversion "calculators" all over the Web to help you with your decision (test several or read reviews first to make sure the calculator you use matches your personal situation best — not all calculators are created equal). We have IRA calculators to help you chose between a regular IRA and a Roth IRA and decide whether to convert an IRA into a Roth IRA:
http://www.fool.com/calcs/calculators.htm#roth
Click on "Should I convert my IRA to a Roth IRA?"
If you are three years away from mandatory withdrawals, just let it set and take minimum withdrawals when you have to.
Sheesh, this is too important to trust to a random bunch of people answering questions on YA because they have nothing better to do!! Find a financial adviser!
Assuming you will have less taxable income after you retire (most, but not all do) the answer given by Wartz is correct.
If your tax bracket will be the same or lower after you retire, it would cost you more (both in real dollars and the time value of money) to pay the tax now. Only if you will be in a higher bracket after you retire would your plan be to your benefit.