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Roth conversion question - I'm confused
Old 01-09-2015, 05:08 PM   #1
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Roth conversion question - I'm confused

After running i-ORP, results say I should convert as much as $80k per year until all of our t-IRA is converted.

But when I run calculators to determine whether converting is in our best interest financially long-term every one of them say no.

I also read that when your future tax rate is significantly lower than current it doesn't make sense to convert. We're currently at about 33% and future is estimated to be 15% since we have 60% of our investments in after after tax investments.

Am I missing something in my analysis of whether we do conversions or not?
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Old 01-09-2015, 05:35 PM   #2
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You state you future tax bracket is expected to be 15%, but I'd guess that's without the IRA's RMDs. Those RMDs could push you into a bracket higher than 15%.
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Old 01-09-2015, 05:37 PM   #3
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Wow, I can't think of a good reason to convert IRAs at a 33% tax rate when you'll be in the 15% bracket in retirement. Don't know why I-ORP is telling you otherwise... admittedly I've never used it before but that seems like common sense planning to me.
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Old 01-09-2015, 06:10 PM   #4
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Quote:
Originally Posted by Lisa99 View Post
After running i-ORP, results say I should convert as much as $80k per year until all of our t-IRA is converted.

But when I run calculators to determine whether converting is in our best interest financially long-term every one of them say no.

I also read that when your future tax rate is significantly lower than current it doesn't make sense to convert. We're currently at about 33% and future is estimated to be 15% since we have 60% of our investments in after after tax investments.

Am I missing something in my analysis of whether we do conversions or not?
Read this post by the developer of i-ORP:

Do you use i-orp.

What he's saying is that the tool ignores your tax situation and the tax law when it gives tax advice.

It assumes you have no other income from your taxable investments and looks only at the ROTH conversion amount to determine current tax liability.

There's little doubt in my mind that this tool has seriously damaged many of the people who have used it.
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Old 01-09-2015, 06:34 PM   #5
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iORP does the same for me. Maybe it knows something about future tax rates and required withdrawals that I don't know. In any case, I convert to the top of the 15% bracket as best as I can estimate it.
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Old 01-09-2015, 06:39 PM   #6
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I agree that paying 33% today is not smart when you have to pay 15% later...

But, paying 15% today might be smarter than paying 15% later... first, you have to pay on any gains if you do not convert... and you might have to pay taxes on SS.... that would make your rate higher than 15%....

Of course, if you make enough that SS is fully taxed anyhow then this does not apply...
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Old 01-09-2015, 10:09 PM   #7
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I could never make any sense out of i-orp results. Makes no sense at all to convert if one is in the 33% bracket in most cases I can think of.
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Old 01-10-2015, 06:20 AM   #8
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I would only convert up to the 15% income level if possible. Roth conversions are ideal for those with nondeductible T-IRAs and no other IRAs who are in low tax brackets. For everyone else, it is a coin flip at best.
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Old 01-10-2015, 12:46 PM   #9
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It could be that I-orp is estimating the returns on the Roth conversions - the 'sooner' they are converted the 'longer' they have to compound, your future RMDs will be lower because more deferred accounts will now be in Roths and that money will then be tax free when drawn on later.


Not sure though....
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