ferco said:
Assuming one's income disqualiflies them for a Roth and from what I'm reading on the other threads I'll get screwed in retirement when it comes time to withdraw from the IRA's/ 401K in retirement ;what are some recommendations on where to put "retirement" savings.
Currently "eligible" to put approx 20K per yr in SEP IRA. Should I bite the bullet and only fund 10K to the tax deferred account,( ie., IRA )and the other 10K to a taxable account?
Also, I believe you can only shift money from a regular IRA account to a Roth account if you are income wise Roth eligible(which I'm not), is this true?
Roth contributions and Roth conversions are two different limits.
I don't remember the Roth contribution limits but the conversion's limit is $100K. The amount of the conversion doesn't count against that limit. Starting this year, RMDs also don't count against that limit.
So at some point in your life when your "modified adjusted gross income" drops below $100K, you can convert your IRA to a Roth.
But there are many more issues to consider for a conversion. Probably the biggest question is whether your RMD tax bracket will be higher than the conversion's tax bracket. Drawing SS and a sizeable RMD can quickly jump you up to the 25% bracket. You may be able to convert IRAs to Roths over a number of years in the 10-15% bracket. That'd be a good situation to run a conversion. Several of us posters are stretching out our conventional IRA conversions to Roths. (It'll take us seven or eight years.)
But if you only have a year or two to convert your IRA to a Roth, and if forcing that conversion into those years would jump you above the 25% tax bracket, then you'd actually do worse with a Roth conversion...
Another issue is how you pay the conversion taxes. If you convert $100K from a conventional IRA into a Roth IRA and pay the taxes from that account, then the Roth starts out with a lower amount and doesn't usually beat the conventional IRA. But if you convert the full $100K and pay the taxes with funds outside of the IRAs, then your Roth is starting from a full $100K with no RMD tax penalty... effectively boosted by the amount of the tax.
We could go on & on, but good references are Ed Slott's
book & his
website.
