Converting Traditional IRA to Roth IRA

[piranha]

Hi.

I'd like to get some opinions on whether this would be worthwhile. I have had a traditional IRA that I haven't added to for around 10 years that is now worth around $10000, a bit more than double what the initial investment was.

I realize there are tax implications for converting this to a roth ira, but would it be worthwhile?

Lol... I guess the 1st question should be... is converting this even possible? I believe it is, but hopefully I haven't been misinformed or have misunderstood how conversions work. My wife and I have been contributing the max to our Roth's for quite some time.

I'm 34 yrs old and have no need for the $ in the immediate future. My wife is on maternity leave and will not be earning any income for this upcoming year, so I figure if there's a time to do it... it's now while our combined gross income is low.

I earn around $75000 a year and we already do have to pay taxes on dividends earned from non - retirement related mutual funds and stocks.

Any advice? Any other information needed?

Thanks...

 

[clifp]

Short answer is yes convert it, while your wife is on maternity leave and you are in a lower bracket.

The only reasons while you wouldn't want to do a conversion is because you don't have the money to convert it now, and would have to liquidity something that you don't want to sell (e..g Rental property, stock with a huge 3x increase). Or if you believe that income taxes when you retire will be below the 25% bracket you are in now, or you think Uncle Sam will renege and start taxing Roth IRA when you retire.

 

[REWahoo]

Here is a good source of info on the conversion question:

http://www.fairmark.com/rothira/decide.htm

 

[bongo2]

This is a traditional IRA where you did not deduct the original contribution? In other words, you have a basis of 50% of the IRA amount? In that case I would say convert. If you deducted the original contribution, so you have no tax basis, then you may still want to convert, but it is more of a toss-up. I would say if you have a lot more money in zero basis plans (like 401k), and relatively little in Roths, then I would convert just to balance it out. If you have a lot of money in Roths then I would leave it for the same reason. Last consideration is if your tax rate this year will be lower than you expect your retirement tax rate to be. In that case convert.

 

[piranha]

Thanks for the advice.

I ended up getting the paperwork to do this and plan on following through.