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Convert to a roth?
Old 03-13-2020, 03:02 PM   #1
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Convert to a roth?

Is now a good time to convert Traditional IRA assets to a Roth?

My thinking being that it would limit any capital gains I'd have to report for the conversion, and then I could stick the money into the Roth in the exact same funds as before...

Is my thinking right?
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Old 03-13-2020, 03:17 PM   #2
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Sort of... there are no capital gains on a conversion... however, assuming that your tIRA doesn't have any non-deductible contributions (which is common) then the entire amount converted would be income.

But you're on the right track. Let's say that you had $100 in a domestic equity fund at the beginning of the year and that is is currently $80 but you expect that over time it will recover to $100 and your tax rates is 20%. If you convert the $80 now you pay $16 in tax vs $20 in tax if you converted later.

So if the $80 you convert today grows back to $100 then you have $100 after having paid $16 in tax. If you don't convert and it grows to $100 and you withdraw, after paying $20 in taxes you have $80 left. So if you convert now you come out ahead by $4 (being 20% of the $20 temporary decline in value).
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Old 03-15-2020, 09:16 PM   #3
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I'm not a market timer but a buy-and-hold investor. But I'm also planning to Roth-convert about $40k this year. Per pb4uski's logic, for a Roth conversion it can be worth one's while to do some market timing in a bear market, because if one is converting a certain amount sometime during the year, the closer to the bottom of the market one converts, the more inherent value one gets in the resulting Roth funds. So, who has a crystal ball to tell me when the current market will reach bottom so I can do my Roth conversion this year?
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Old 03-15-2020, 09:32 PM   #4
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If you are going to convert, it is certainly more advantageous to do it when the market is down so that you pay less for a given share amount. Perhaps the more basic question should be answered first.............what is the tax rate you will pay now vs if you leave it in the TIRA and withdraw in retirement or perhaps the tax rate if you converted after you retire.
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