401K & IRA Conversion to Roth Tax Stategy

[Independent]

I believe you may have misread.......in both cases, started w/ 15K side fund in taxable and 100K TIRA. In one case, side fund was used to pay conversion tax. In other case nothing was changed until the end when the after tax comparison was made and side fund was taken into account.

Sorry, I confused the two 30's. Like Walkinwood, you're using the conversion as an opportunity to shelter the investment income on some otherwise taxable long term investments.

 

[GregLee]

It's certainly an interesting problem. There are a couple of complexities that I don't understand. (1) The 15K fund that might either be used to pay for conversion to a 100K Roth IRA, or else just put aside for later use to satisfy the later tax obligation, could itself be sheltered in a IRA. (2) If you don't convert to a Roth IRA, the money in the TIRA is not all subject to tax at once, but only the amounts you withdraw, with the remainder that is left in the TIRA (more than the amount in the corresponding Roth) still appreciating.

 

[kaneohe]

It's certainly an interesting problem. There are a couple of complexities that I don't understand. (1) The 15K fund that might either be used to pay for conversion to a 100K Roth IRA, or else just put aside for later use to satisfy the later tax obligation, could itself be sheltered in a IRA. (2) If you don't convert to a Roth IRA, the money in the TIRA is not all subject to tax at once, but only the amounts you withdraw, with the remainder that is left in the TIRA (more than the amount in the corresponding Roth) still appreciating.

Greg....1)I guess I was thinking about a retiree who no longer has earned
income so he couldn't do an TIRA anymore. If you had a working person,
you would have to compare him with another working person who could also be putting new money in a TIRA as well as converting, so wouldn't the same analysis apply? I think the assumption here is that funds availability is not an issue for conversion.

2) I haven't done your problem in any gory detail but I thought since it held for doubling (no # of yrs specified) and quadrupling (no # of yrs specified), that it would hold for any given rate of return and any distribution pattern. That might be an intuitive leap of faith that might not be true for a real world situation which is perhaps why I haven't made the leap to do it 100% yet.(mind converted but not gut). If you pursue this, I'd be interested in your findings.....perhaps this is the same idea as the stretch IRA?