Converting an IRA into a Roth

Are there benefits of converting an IRA into a Roth and take advantage of the lower tax rates of today compared to future predicted tax rates. What is the break even income level where this makes sense?



It makes sense to convert if you can do it at a marginal rate that is lower than, or sometimes equal to your expected average marginal rate in retirement. You should consider your own personal circumstances as well. For example, if you are going to retire early, your marginal rates in retirement should be lower because you will have a lower IRA account value and probably lower taxable investment assets as well.



If you have other money with which to pay the tax on the conversion, the conversion will usually make sense even if the tax rate on the conversion is a little higher (but not too much higher) that the tax rate that would otherwise apply to the distributions.  That’s because the conversion effectively shifts wealth (the tax) from the taxable account to the IRA.



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