RunningBum
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jun 18, 2007
- Messages
- 13,236
Thanks Nords, those make sense and some may even apply to me, but certainly not while I'm still working unless income tax rates really soar in the future. I hadn't really considered the ER window. The social security factor is interesting too.
Tax rates may go up, but some people converted back when they were higher so you never know for sure.
One flaw I've been making in my math is thinking that you would reduce your Roth IRA by the amount taxed, so that you had less money in tax free growth. As you and others have pointed out, to avoid the early withdrawal tax you need to pay the taxes outside of the conversion. So what you are reducing is your investment in a taxable account. Had you not converted, any investment return on this money would've been taxed, and that makes for a benefit to a Roth IRA even if you stay in the same bracket. I'm going to mull that over again but I think that's right.
So yeah, it might make sense for me to start a slow conversion to the top of my bracket once I'm ER'd. I doubt there's many cases where a bulk conversion makes sense if it's very big.
Tax rates may go up, but some people converted back when they were higher so you never know for sure.
One flaw I've been making in my math is thinking that you would reduce your Roth IRA by the amount taxed, so that you had less money in tax free growth. As you and others have pointed out, to avoid the early withdrawal tax you need to pay the taxes outside of the conversion. So what you are reducing is your investment in a taxable account. Had you not converted, any investment return on this money would've been taxed, and that makes for a benefit to a Roth IRA even if you stay in the same bracket. I'm going to mull that over again but I think that's right.
So yeah, it might make sense for me to start a slow conversion to the top of my bracket once I'm ER'd. I doubt there's many cases where a bulk conversion makes sense if it's very big.