Timing a Roth conversion

[Sanbenito1]

I have about $20k that I want to convert from an IRA to a Roth IRA, because u will likely be in a higher tax bracket during retirement. The IRA money is mostly bonds/safer money, and I'm thinking the Roth should be an S&P 500 or Extended Market index as I may never need the money and would be looking for longer term growth. My question is on timing: I'd like to buy the stocks when the market dips, but it never seems to really go down these days - and when it does, I'm not paying attention and miss it. Should I just pull the trigger now and convert, figuring it's a long-term investment, or wait it out for a market correction?

 

[kaneohe]

...........or convert in pieces, recharacterizing later if desired, and re-converting , being sure to wait the appropriate time before doing this.........................

how will you be in a higher tax bracket during retirement?

 

[mpeirce]

Or average into the market over the next year. This avoids the angst of trying to time the market.

 

[pb4uski]

In the long run, it probably doesn't matter and you'll really never know so do what you are most comfortable with. If it were me, I would at least move the money from the IRA to a money market fund in the Roth in one swoop and then value average $2,000 a month until the $20,000 is fully invested in the stock fund of your choice.

 

[Sanbenito1]

Good ideas- thanks all!

 

[greyhat]

What's the overall point of the conversion? When you convert you have a taxable event; why not just cash out the IRA then?


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[pb4uski]

Because the Roth will grow tax free even if you're in a high tax bracket (which is not uncommon once SS, pensions and RMDs start).

If you took it an put it in equities in a taxable account if you are in the 15% tax bracket or lower that would likely be tax-free as well since qualified dividends and long term capital gains are taxed at 0%.

 

[steelyman]

I think a conversion is an option if you expect to leave money to heirs. I have Roths, but don't expect to convert traditional money. That's a personal choice and merits thought.

 

[greyhat]

Well there is no free lunch with Uncle Sam; converting would allow for tax deferred growth of earnings and subject to Roth rules, tax free distributions of earnings afterwards. However if you won't likely need the money then the question becomes, "who will benefit from the conversion?" Sure you may avoid paying taxes on dividends & gains in a Roth but will that be at a cost to your heirs? There are no tax basis step-ups in a Roth.


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[steelyman]

But isn't a Roth not taxed?

 

[pb4uski]

Well there is no free lunch with Uncle Sam; converting would allow for tax deferred growth of earnings and subject to Roth rules, tax free distributions of earnings afterwards. However if you won't likely need the money then the question becomes, "who will benefit from the conversion?" Sure you may avoid paying taxes on dividends & gains in a Roth but will that be at a cost to your heirs? There are no tax basis step-ups in a Roth.


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Think before you type. A step up in basis is redundant since distributions are generally tax-free to the person who inherited the Roth.

 

[LongPrime]

Convert. You don't have to do it all at once. If you are young and trade, you may want to have a trading account and forego future IRA contributions or excessive 401k.

 

[Options]

I have about $20k that I want to convert from an IRA to a Roth IRA, because u will likely be in a higher tax bracket during retirement. The IRA money is mostly bonds/safer money, and I'm thinking the Roth should be an S&P 500 or Extended Market index as I may never need the money and would be looking for longer term growth. My question is on timing: I'd like to buy the stocks when the market dips, but it never seems to really go down these days - and when it does, I'm not paying attention and miss it. Should I just pull the trigger now and convert, figuring it's a long-term investment, or wait it out for a market correction?

Lots of relevant information missing:

1) How old are you now?
2) What's your current tax bracket?
3) Can you convert in stages thereby preventing you from jumping into the next tax bracket (i.e., 15% to 25%)?
4) What leads you to believe you will be in a higher tax bracket during retirement?
5) Do you plan to delay Social Security?
6) How old will you be when you plan to retire?
7) What's your ratio of after tax to tax-deferred monies currently?
8) Do you have an ISP?
9) Have you thought through your AA (you mention extended markets) and risk tolerance?
10) Most importantly, why are you trying to time the market when all research shows it's not humanly possible?