<p>I see people can convert anytime…</p>
<p>[Roth</a> IRA conversions: What advisers get wrong - MarketWatch](<a href=“http://www.marketwatch.com/story/roth-ira-conversions-what-advisers-get-wrong-2013-03-07]Roth”>Roth IRA conversions: What advisers get wrong - MarketWatch)</p>
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What the heck have you been saving money in an IRA for, then? Just the tax advantages?</p>
<p>There is no age limit on a Roth conversion, however if you are 70 1/2 you have to do the RMD <em>first</em>. So convert the IRA to the Roth when you are 69, and enjoy the permanent tax-free growth. Or whenever, because there is no 10% early withdrawal penalty for a conversion.</p>
<p>"This assumes you have $40K laying around not doing anything.</p>
<p>The opportunity cost of that $40k more or less balances out the extra money in the Roth.</p>
<p>It’s not a fair comparison in that case. You’ve essentially injected $40K of money into your Roth"</p>
<p>notrichenough, I know that it is easier to make the comparison when you say the taxes are paid directly out of the Roth, immediately. But people should NOT do that. If you can’t pay the taxes outside of the converted Roth, perhaps one should not convert. It is crazy to use the converted Roth to pay taxes. The reality is, you don’t have to pay the taxes right away anyways, it can be spread out over years.</p>
<p>The best time to convert is when the market has crashed, and your account for the year is at its lowest. That’s what you pay taxes on. If you mess up and convert when the market is at its highest, you can always reconvert in a certain timeframe.</p>
<p>If you are paying at the 40% tax rate, you have a high income…you need to find a way to come up with the conversion tax outside of the Roth. You want as much in that Roth as possible, to grow forever tax free. We even borrowed money from our HELOC to pay the taxes, for a couple of years. Yes, there is a cost to that, and an opportunity cost if you pay that 40K out of money that you would have invested. Of course, that money would be after tax, and taxed yearly, so it’s not as good as that 40K growing tax free for decades.</p>
<p>Tax rates may go up…</p>
<p>Tax brackets are indexed for inflation…i dont see anything that changes this…</p>
<p>Examples </p>
<p>A zero tax rate for income under 20,000</p>
<p>If inflation increases 100 percent…</p>
<p>The zero tax rate will be for income under 40,000…</p>
<p>The top rate starts at 400,000, </p>
<p>If inflation doubles the top rate will start at 800,000…</p>
<p>The above are reasons to consider not doing a roth…</p>
<p>If you think your income isn’t going to be higher in 25 years…you should be in lower tax brackets…</p>
<p>I dont know what they are going to be…lol…</p>
<p>I am saving the money for my special needs daughter notrichenough…</p>
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Well, as I have shown, if tax rates are the same at the beginning and the end, it is a wash.</p>
<p>They won’t be, so which wins? Who knows?</p>
<p>It is difficult to calculate the opportunity cost of the money used to pay the taxes. If you invest it right you might only ever have LTG and might never have to pay them until the end, so that mitigates a lot of the tax effect.</p>
<p>We have a pretty good pile of money in IRAs. It would cost me at least a year’s pay in taxes if I converted it all, maybe 1.5 years. There’s just no way I could come up with that kind of money.</p>
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Eh, 25% Fed bracket, 5% state, there’s 30%, maybe that would have been better to use.</p>
<p>The 25% bracket starts at $72.5K AGI for a married couple, hardly high income.</p>
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Ah. Well, now that you are retired maybe you have the option to play “bracket bingo” and convert an amount each year that just takes you up to the next bracket.</p>
<p>And if you can afford to pay the taxes without taking money out, that’s a backdoor way of adding a huge extra amount into it.</p>
<p>If you know there is a year you will have a low income, or can push the income into a different year in order to lower your tax bracket, it would be a good idea to convert in that year.</p>
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I dont understand this. You just erased all your gains. The best time to convert is the year you believe you will have the lowest tax bracket.</p>
<p>I don’t know what I am going to do…</p>
<p>There are so many variables…</p>
<p>Cal is a high income tax state…another variable…</p>
<p>"The best time to convert is the year you believe you will have the lowest tax bracket. "</p>
<p>The year you get laid off or lose your job for substantial part of the year. But who in the right frame of mind would think of doing such thing.</p>
<p>"Cal is a high income tax state…another variable… "</p>
<p>Do you plan to stay there after retirement? If not, it is another factor for not converting to Roth.</p>
<p>At age 69, for example, why can’t one just take a low-paying job such as a Walmart greeter and do the conversion to Roth in that tax year?</p>
<p>edit: re post #151, that is a good time too TTparent.</p>
<p>Ttparent, I plan on staying in Cal…</p>
<p>“I dont understand this. You just erased all your gains. The best time to convert is the year you believe you will have the lowest tax bracket.”</p>
<p>I’m pretty sure you don’t have to sell your stocks or mutual funds to convert, it doesn’t have to be in cash. I think that is right, can anyone verify? You just fill out a form…and convert it to a Roth. But the amount on the day you do the conversion is the amount that you will pay taxes on. Say the market crashes and your 100K turns into 80K. Convert then (though I’m sure it takes a week or so). Then by the end of the year, say your 100K is worth 120K? Just picking random numbers, but you’ll pay taxes on 80K, when you converted.</p>
<p>So if you could actually plan the future, the best time to convert is the year you’ll have the lowest tax bracket, at the time the market crashes. Of course, if I could figure that one out…</p>
<p>“The year you get laid off or lose your job for substantial part of the year. But who in the right frame of mind would think of doing such thing.”</p>
<p>You would really have to have your act together to do that one, but it would be a smart move. If your tax bracket was zip, you wouldn’t pay taxes on it. Maybe someone who has plenty of money saved up could be in the right frame of mind, because that would be logical.</p>
<p>You go on ahead, krlilies, take that job as a Walmart greeter! Explain that one to your friends…</p>
<p>busdriver, :D. I don’t have to tell my friends. I’ll wear a wig and funky looking glasses</p>
<p>dstark, some of the conditions where I would do it.</p>
<ul>
<li>if I think that I would have way more than enough in retirement money at 70 year old (sadly I don’t see it for me right now).</li>
<li>if I think the tax rate is going to be higher when I retire (not clear at this point with all the tax reform talk within our government).</li>
<li>if I all of the sudden get into a situation where I temporary make a lot less money than I have been able to get, like losing a job or getting downgraded.</li>
</ul>
<p>Again, it seems that it is set up so that you can always do this at the later time but you cannot do the reverse. It is possible that this is a losing proposition, but so far it has not been very compelling for me to do it.</p>
<p>TTparent, I think what you wrote is reasonable.</p>
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You don’t have to have a job to convert to a Roth. My 83 year old father did it because:</p>
<ol>
<li><p>He no longer had to take RMD and therefore lowered his income in subsequent years significantly enough that his tax was almost zero. Seeing as most of his income was in capital gains and social security.</p></li>
<li><p>It continues to grow tax free for the rest of his life, even if that’s only another 20 years and therefore can leave it to his kids tax free.</p></li>
<li><p>He was convinced that once the Democrats got into office taxes would go up. </p></li>
</ol>
<p>So far it has worked remarkably well. He converted in a year when the market was way down and it has gone back up. All those gains are now tax free. He doesn’t have to take RMD and he doesn’t need the money. His tax last year was zero. Yes, zero. He’s a very happy camper.</p>