Roth conversion | Ed Slott and Company, LLC

# Roth conversion

I attended the seminar in Washington last week, and was hoping to see a calculation on the logic of converting to a Roth. I know Ed Slott feels very strongly of converting to a Roth due to a potential of increasing tax bracket. However in 50 years of practice I have seen tax rates go up and down. Also if you assume a 7% return and a 50% tax rate for both federal and State, and one had to pay the tax on the conversion from a side fund, won't you have more money in the IRA, side fund vs the Roth 15 years down the line. Yes the tax bracket drops to 35% at retirement 15 years down the line, and it would appear that leaving it in the IRA and the side fund accumulation would have been better than the converted amount in a Roth?

### With no distributions taken

With no distributions taken after the conversion, the balance of a TIRA and Roth IRA would be the same, but the taxable account from which taxes are paid on the conversion would be considerably less. But you should not be comparing these balances before TIRA distributions are factored in, and that is when the TIRA balance begins to shrink. Still even when viewed with all IRAs cashed in at the LE expectancy of the taxpayer, the total net proceeds after taxes of the IRAs and taxable account would still be higher without the conversion if the tax rate paid on the conversion is 15 pts higher than the average marginal rates on the TIRA distributions.

### WITH NO DISTRIBUTIONS TAKEN

Alan,Certainly it's preferable that for a Roth conversion, the present marginal tax rate be less than or equal to one's expected average marginal tax rate on the TIRA distributions.  Does your response to edngo@verizon.net  imply that a Roth conversion of a TIRA or 410(k) asset could still be worthwhile at a marginal tax rate even 10% more than one's expected average marginal rate on the TIRA or 401(k) distributions?Thank you for your further comment.

### Hopefully, not. I indicated

Hopefully, not. I indicated that the total liquidated value of all accounts would be higher without the conversion (due to the tax cost of the conversion), therefore the conversion would be ill advised. If the conversion rate is lower than the taxes paid on distributions if not converted, then it would be beneficial. There of course is a gray area, maybe between 2 less to 2 over where the outcome might vary.

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