headingout
Recycles dryer sheets
- Joined
- Feb 18, 2008
- Messages
- 147
I've looked at doing a Roth IRA conversion several times over the years and it never makes sense to me. Everybody's financial parameters are different, but here are my fundamental objections:
- Most of the people in range to retire early are there because they have a substantial income now and live below their means. It makes no sense to me to assume that somebody in that position is likely to have the same or higher tax rate (more or equal income) once they stop working in retirement -- one of the often cited justifications for a Roth.
- It is general wisdom now that we can expect higher tax rates in the future. But regardless of which party is in control, I doubt they would substantially raise taxes on the middle class. And many of us who live below our means will have a middle class income, though not middle class assets, in our retirement.
- Doing a Roth conversion now involves spending money on taxes today based on assumptions about what the government will do in the future. A general principle of financial success that I have observed is to defer expenses, and not be pressured by fear into spending money early.
- Lastly, there is an argument for doing a partial Roth conversion as a tax diversification strategy. There is some sense to that. However for that to really make a difference, a substantial portion of your assets need to be converted, which again boils down to making a big, low-probability bet that your tax bracket will be higher in the future. Additionally it means another account to manage, and thus more complexity, and room for error, in your financial life.