Converting IRA to ROTH IRA?

[marc515]

I have some CD's in an IRA, and was thinking about converting them to ROTH IRA CD's. I converted one $25K CD in Jan of 2012, and the I estimate the taxes twill be approximately $5,100.

I wanted to convert a couple of more to ROTH IRA CD's so the interest would grow tax free, and we wouldn't have to pay any taxes down the road. I'm 60 now, and would leave them in CD's for the next 5-10 years.

However, I'm thinking it might be better to invest the $5,100 in some of my stocks and funds, and the growth of that $5,100 should more than exceed the taxes I would have to pay (providing the market goes up over the next 5- 10 years.

Is my thinking process headed down the right road?

 

[youbet]

Who knows? Your current and future tax brackets plus all the other tax issues like phasing out deductions at higher incomes, higher Medicare premiums at higher incomes, etc., etc. all come into play. How well you do investing that $5100 is also key.

I'm doing some converting as my IRA's were only about 5% Roth and I want more withdrawal flexibility than that small amount would afford me. I'm 65 and converting to near the top of the 28% bracket. Will it pay off? Dunno. If I knew it would, I'd do more.

 

[ronocnikral]

I think you are comparing apples and oranges. It isn't fair to say, is 1%-2% growth "tax free" worse off than a more risky investment (and therefore, in theory, higher return) in the stock market.

You can put hard numbers to the question at hand, but it is dependent on your assumptions. Generally speaking, the "invest in tax deferred and invest the rest in taxable accounts" vs "invest in Roth IRA" favours the roth a bit more if you assume the same return rate.