Let's rip on Suze!

[RunningBum]

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.

 

[mathjak107]

you dont get taxed 2x on 401k loans. the money you earn is taxed 1x regardless of whether you take a 401k loan or a loan from a bank. if you took 10,000 from a 401k loan and decided you didnt need the money and put it right back are you paying more in taxes that year? of course not.

your income gets taxed the same in both cases. she likes to say your replacing the money with after tax money but thats inome that will be taxed regardless of the loan or not. think about it, at no time in any year either when withdrawing at retirement or while working and paying back the loan is your tax bill a penny higher at any point

 

[FinanceDude]

Don't take Suze too seriously, all she wants to do is sell books and tapes..........

Read some stuff about her. As a young broker, she used to consult "crystals" to get advice about how to invest her client's monies...........

 

[HFWR]

Don't take Suze too seriously, all she wants to do is sell books and tapes..........

Read some stuff about her. As a young broker, she used to consult "crystals" to get advice about how to invest her client's monies...........

Were those crystals "snorted" by chance?

 

[FinanceDude]

Were those crystals "snorted" by chance?

Not sure...apparently there's a whole "world" of crystalology............

 

[EngineeringMyFinances]

Some of the discussion in this thread gives me the impression that you have to convert all of your tax-deferred savings all at once. Not the case. I did a conversion last year. First I created a rollover IRA at Vanguard and distributed part of my 401(k) funds to fund it via direct rollover. Then I converted part of my rollover IRA to my Roth IRA. Of course it increased my 2006 taxes, but I had planned for that by increasing my withholdings.

If you're planning to convert some of your money to Roth, I'd start this year and spread it out to your advantage. I think it quite probable that tax rates will go up in the future.