Conversions
Hi,
I had a general question. If you are eligible to convert a deferred account such as an IRA to a ROTH, is it always worth doing if you can pay the taxes on it? Or put another way, is it better to not deal with RMD if you can? I realize that may be a big question but I wanted to ask. Thank you for your help.
Sincerely,
Paul Scherrer
PS Thank goodness for the edit button. That is a nice addition.
Permalink Submitted by Alan - IRA critic on Thu, 2017-12-14 18:18
No, it is not always worth converting. The general guideline is whether the tax rate paid for the conversion is lower than the rate you expect to pay in retirement. If lower, the conversion is beneficial, if the rate is about the same it MAY be beneficial, but if higher is likely not beneficial. RMDs are not difficult to deal with, but if your tax rate will be higher in retirement, then conversions will reduce the RMD amount. Normally, conversions would be done in incremental amounts in order to avoid increasing the tax rate on the conversion by spilling over into the next higher bracket.