There are many more variables to consider, and it is hard to be completely sure that you might be advising the best action.My partner has about $250,000 in her rollover IRA (all wih Vanguard). Should she rconvertl to a Roth? She is 67 on SS & pension, has no debts and her house is aid for.
DCA, you may be a fellow nuke, but it's possible to form the conclusion from your profile that you may be a little less than objective in your assessment. We've had quite a few financial advisors start out like this, and their retention has been pretty low.Roth is a bad deal for almost ANYBODY in the current economic and political environment.
....throw in the tax brackets dropping every year by about 2-3% allowing more and more through at lower and lower brackets and its going to be tough for most to actually be in a higher bracket.
even if rates were the same the roth would do worse than a deductable traditional just because the brackets keep dropping.
Tax bracket thresholds are inflated using CPI-U series CUUR0000SA0 with some averaging and rounding to make the nice numbers that end in '00'.Huh? Seems to me like brackets are increasing at ~ the inflation rate.
Top of 15% tax bracket for MFJ:
2007 63,700
2008 65,100 +2.2%
2009 67,900 +4.3%
2010 68,000 +0.1%
2011 69,000 +1.4%
2012 70,700 +2.5%
i was refering to the the 25% marginal bracket and the fact more income is going through at lower taxes. what i meant when i said the brackets were dropping is what was the bracket above is now in the bracket below. sorry if i confused you..
2012 85,650
2011 83,600
2010 82400
over the next decade 100k will go through at 25%. that mean some tough going for a roth unless taxes in that bracket go up .
my opinion is with 80 million retired baby or retiring baby boomers no political party will want to tell them they are raising their income taxes.
i think everyother tax will soar but i think they wont touch the 15 and 25% brackets.
DCA, you may be a fellow nuke, but it's possible to form the conclusion from your profile that you may be a little less than objective in your assessment. We've had quite a few financial advisors start out like this, and their retention has been pretty low.
Mathematically, I'm a little confused about how paying 15% taxes now is worse than paying 25% taxes later... hyperinflation or not. If some people are in that situation, then it's probably better to pay taxes now rather than trying to forecast the political & inflationary risks.
I don't see how. Your earnings on the Roth still would've been tax free. It's just less of a savings.boy if roths were around when i started work back in the 1970's i would have gotten screwed big time since taxes came down so much.
True enough, though huge tax drops and other big tax law changes aren't so much case-by-case as they are things that affect many people that weren't easily predicted.its really a case by case issue rather then just general advice for everyone to do a roth.
I don't see how. Your earnings on the Roth still would've been tax free. It's just less of a savings.
Had you done a Roth INSTEAD of a 401K (which didn't exist then either), you would've made the worse choice, but for many people it's not an either/or, it's an "and".
True enough, though huge tax drops and other big tax law changes aren't so much case-by-case as they are things that affect many people that weren't easily predicted.
Looks like we have a doubter. Convert to Roth now or keep as tIRA? Let's go to the math to see what the numbers say. Scenario: 9900% (100x) hyperinflation and 15% tax rate now and later. $1000 in tIRA, $150 in non-retirement bank account.
1) Convert to Roth now, pay $150 in taxes from bank funds. After 100x hyperinflation, Roth value $100000, bank $0. Total after-tax net worth: $100000.
2) Keep as tIRA. After 100x hyperinflation, tIRA value $100000, bank $15000, totals $115000, which has pending taxes of $17250. Total after-tax net worth: $97480.
So, for each $1000 of initial tIRA, converting to Roth now makes you $2520 richer.
the tax free part may not mean anything if rates are the same.
given the same tax rates and gains the roth and the traditional both would equal the same amount assuming you equal the amounts up .
as an example in the 25% bracket 5000.00 in a roth ,plus the taxes you have to prepay is the same as 6650 pretax in your 401k
if both doubled over time they both yield the exact same bottom line after the taxes on the 401k are paid.
folks always figure this wrong because they prepay the taxes upfront on the roth with money outside the roth . they then try to compare by paying the taxes out of the traditional..
they really end up equalling the same thing at the end of the day.