Quote:
Originally Posted by loves2read
And it is the roll-over into the Roth that makes this desireable to us
before they lifted the income limit for conversion we couldn't do them--
we didn't benefit really long-term by putting more money into a retirement fund that will be taxed when we take it out...
you also have more flexibility for how you will-away a Roth if you have heirs...
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roth conversions, and even doing roths at this age have to be run through a large amount of scenerios. it may not be worth it so late in life .
there are a number of reasons you may not want to do it.
first off tax brackets expand out each year letting more and more income go through at lower and lower tax rates. even if taxes stay the same you would do better not doing it.
biggest issue is if you delay ss. you can draw up to 42k as a retired couple with as little as 1800 bucks tax from your retirement money and any equities held in a taxable account would have zero capital gains taxes. this is never taxed money for the most part as even 20k of it can be had tax free each year with good planning. this is a gift from uncle sam.
if you delay ss until 70 you can draw over 320k over that time frame with under a 5% tax rate and that is money you took the deduction on at higher tax rates.
what rate would you pay on those conversions? 25% ?
doing roths or roth conversions without a total tax planning plan makes little sense.
very few americans that did not start the roths at the beginning of their careers will be in a higher tax bracket with no pay checks as compared to possibly two pay checks coming in.
so when are roth conversions worth it?
when your income is marginal to getting ss taxed or you getting hit with the medicare surcharge tax.
other wise the only given is roths are great when started very early on and it has nothing to do with tax free compounding.
since most folks have their income ramp up over decades of time , the average tax rate for their working career and not just the final years will be lower then their tax rate usually by retirement.
it is this long term lower average tax rate you paid along the way that will likely put you in a higher tax bracket in retirement since generally your income and lifestyle is planned around your end of career earnings.
just that fact can give you 20% more spendable cash at retirement. but if you missed doing the roth during your early ramping up days you blew it. the biggest reason for doing it is missed.
our generation had no roths early on so we had no chance to get in on the deal. now it is very very very individual scenerio specific if any roths are helpful or leave us behind.
as far as leaving money to heirs. a single premuim life insurance policy is leveraged and will not cost you what you leave so the tax free life insurance money may be a better deal since local estate taxes or inheritance taxes may apply to anything but life insurance passed outside of the estate. many states like new jersey have very low state estate tax levels.
i can leave my wife a million bucks in taxable ira's and she will have rmd's and taxes to deal with. but if i take some taxable ira money , pay the taxes and buy a million dollar single premium policy i will pay way less and she gets 1 million of tax free money with no taxes and it is guaranteed and not subject to the whims of the markets.
quite franly while i can invest that ira money many wives out there ,and some husbands have no clue what to do with it once the spouse who handled it is out of the picture.
the kids can inherit what is left in the ira's and pay the taxes streched out over their lifetimes further screwing the tax man.
folks tax planning is a very complex subject and i will say this , any simple answers like some of the above to a complex question are usually the wrong answers.
i consider myself pretty savvy with this stuff and we just got both an estate attorney and a financial planner (who is commissioned i might add) as the scenerios and stuff i don't know about this stuff makes my hair hurt.
if you think seeking profesional advice is expensive i will tell you this , you can not afford free!.
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