ER Roth conversions


Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Jul 27, 2003
Kansas City
This is in repsonse to GDER's last post. I too am looking at possible periodic Roth converions to maximize lower versus higher tax brackets as ER progresses.

Take the 15% hit now versus let the higher amount compuound and take out later at a higher tax bracket.

Fixed income or stocks in the conversion. - is the calc. I'm playing with now. But it doesn't allow separate growth rates.

Pretty much leaning toward rolling the dice and putting 5-10k ( to stay under 15% tax bracket ) every yr into 'risky' vg small cap value and/or emerging markets each yr and see what happens if I make make to my 84.3 yr predicted demise.
There was some good analysis of this on a web page, which I thought was part of the 'gummy stuff' collection. However, I can no longer find it there.

It is pretty well analyzed that tax deferred investments will outperform during the accumulation phase. However, I did find some analysis that tax deferal during withdrawal can be a negative, if the deferal results in a higher tax bracket. The data from i-orp supports this in my case.

In any case, I agree with unclemick's general direction, but can no longer find the web info that supports it. Does anyone have current links?

Take the 15% hit now versus let the higher amount compuound and take out later at a higher tax bracket.

unclemick, I have been thinking about this tactic
also, but it makes my head hurt.

It is my impression that the 15% bracket limit is
indexed to inflation. Won't this keep us in the
15% bracket ad nauseum?


Remember that you have to factor in potential investment growth of the 15% tax you pay now, compounded over the term until you withdraw, and the lost opportunity potential of having that cash available if you're still a ways away from tapping the Roth as an asset.

I did the full range of calculations. Off the top of my head the net would be about $1m to not roth and about $1.12m to Roth convert. Thats after tax, 8% ROI, 20 year term of investing until withdrawal. Also presumes todays tax treatments remain in effect for that 20 year period, plus the withdrawal period thereafter. The latter presumption is probably the most volatile, followed by the ROI. Most of my IRA investments are the higher volatility, higher returning variety.

I figure eating possibly big tax bills 20 years from now might be a good problem to have, and i'm going to roll the dice on either being able to minimize the tax burden or deciding it doesnt matter because my nest egg is fat enough to make it irrelevant.

Makes my head hurt too - can't make up my mind. Current thinking - max my 15% bracket 4th qtr. of each yr.(pay IRS every 3 months due to DRIP stocks) and then decide before the yr deadline whether to convert some, buy more dividend growth stocks, or party more(up the budget).

To paraphrase Cut-Throat age 60+ spending might be a hecka of a lot more fun than 80+ opportunities. Ala TH - being in a higher tax bracket later might not be such a bad problem. Also I take with a grain of salt the ability to calculate the future with mathematical certainty - FIREcalc gives me a feeling for the wide ranges based on history. Then the stories about the 98 conversions trying to get undone due to the 2000 -02 hosing in the market.

Chickenhearted and procrastinately yours,

There is a middle ground. Roth but just do it a little every year until you've got 25-50% of it done. At that point the way taxes and the markets are going may be clearer. And that way you've got a foot in both worlds.

Doh! I'm even diversifying IRA buckets!
If you believe the dire predictions of the Gorden
Equation, the long term return of a 60/40 portfolio
will return about 6%. I am already drawing
4.1%, which does not leave much for inflation.
Since I have a shorter horizon than most of you,
I will be very lucky to ever exceed the 15% bracket.

Maybe if I take 2 asprins I will feel better tomorrow.


You DO know that chemically aspirin inhibits some abilities of your digestive system to eliminate a certain amount of alcohol before it hits your bloodstream?

Hence two aspirin and a couple of good glasses of wine, beer, or the spirit of your choice might just be the ticket... ;)
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