Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Any downsides to a Roth conversion (nursing home stay ?)
Old 04-08-2015, 09:54 PM   #1
Full time employment: Posting here.
Delawaredave5's Avatar
Join Date: Dec 2004
Posts: 617
Any downsides to a Roth conversion (nursing home stay ?)

Are there any reasons one would not want to do Roth conversions (inside the 15% tax bracket ?)

On instance I suppose would be if a person needed an extended nursing home stay ? If they funded this from a tIRA, all of the distribution would be a medical expense, deductible on taxes, and no or minimal tax paid.

If instead the person converted the tIRA to Roth, they'd have 15% less of money to spend on nursing home care.

Maybe that's too hypothetical or unlikely and the other reasons for conversion are more likely and worthwhile.

Delawaredave5 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-08-2015, 10:04 PM   #2
Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,412
If your effective tax rate will be lower later, such as due to increased deductions, then convert or draw from the tIRA at that time. The problem is no one knows exactly what his/her future tax rate will be, so the process involves making a best guess.

GrayHare is offline   Reply With Quote
Old 04-09-2015, 09:00 AM   #3
Full time employment: Posting here.
Join Date: Jan 2013
Posts: 670
If you suffer investment losses in the Roth after making the conversion, you may possibly lose the tax advantages that are available in other types of accounts. A loss in a taxable account will either offset gains from other taxable investments or provide a $3,000 deduction from ordinary income. A loss in a tax deferred account reduces expected future tax liability.

The recent thread on recharacterization of Roth conversions shows that, if the timing is right, you can still get tax advantages from a loss inside a Roth. But if the timing is off and you're past the recharacterization deadline, a loss inside a Roth is just a loss, with no offsetting tax advantages.
karluk is offline   Reply With Quote
Old 04-09-2015, 11:52 AM   #4
Full time employment: Posting here.
RetireBy90's Avatar
Join Date: Feb 2009
Location: Cville
Posts: 759
I have thought about this for some time. I'm at a 28% marginal rate plus state and have changed all my 401K contributions to Roth. The decision comes down to 1) what will my tax rate be in the future. You can determine this to some degree by looking at how much you will take in pensions, IRA/401K draws, and other income sources. and 2) what changes will be made by govt. The tax rates could go up or down, brackets could change, and we could end up with a national sales tax. Wouldn't that be a kick in the pants if you converted all your tIRA savings to Roth then we switched to a national sales tax, you would have to pay that again. OH 3) do you plan to pass along a IRA to heirs ? you don't need to take RMDs from the ROTH where you will be required to take them from your tIRA. That may not be a big problem, but could impact your decision.
RetireBy90 is offline   Reply With Quote
Old 04-09-2015, 12:03 PM   #5
Thinks s/he gets paid by the post
2B's Avatar
Join Date: Mar 2006
Location: Houston
Posts: 4,337
I'm in the process of being screwed with unintended tax consequences. I put money into a SERP (deferred compensation plan) where I thought I could change the payout dates. It turns out I can't without delaying the payments for 5 years. I'm going from the 25% marginal rate when I put it in to 33% for most of these contributions. Once I figured out the downside, I stop contributing. I would have been much better off taking the money after tax and investing it. At least I would be only paying LT cap gains instead of the big ordinary income tax hit.

When my FIL was in his "facility," he blew away any income tax liability for every year he was there except the year where we sold his house. I pulled all the money out of his IRA ASAP once this started happening. I thought about rolling it over to a Roth but decided that the small amount wasn't worth the paperwork hassle. It was less than $20,000.
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
What are the downsides of having cash in Roth vs. traditional? swampwiz FIRE and Money 2 05-17-2010 11:30 AM
PACE programs - alternative to nursing home care simple girl Health and Early Retirement 0 04-17-2008 07:54 AM
Professional Downsides ferco Other topics 39 10-10-2006 01:58 PM
Nursing Home Bar REWahoo Other topics 12 11-22-2005 07:49 PM

» Quick Links

All times are GMT -6. The time now is 02:29 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.