Should I convert to a Roth IRA?

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Should I convert to a Roth IRA?

Postby seionage » Wed Jan 23, 2013 11:40 pm

I'm a physician in the mid-stage of my career (age 45 and been in practice since 1999). I contribute the maximum to my group's available tax-deductible plans (401k and HSA) every year. Can I assume that, when I retire, I will actually be in a lower tax bracket than I am in now? If the answer is "most likely, yes", then does it make any sense to convert tIRA and non-deductible IRA accounts to Roth IRAs?
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Re: Should I convert to a Roth IRA?

Postby kenyan » Wed Jan 23, 2013 11:47 pm

Non-deductible IRAs, sure (assuming you're talking about a Backdoor Roth). However, if you actually have TIRAs, as you imply, then it may not be worth it. Aside from the ability to Backdoor Roth, I can't think of a good reason you'd want to convert to Roth while you're in your peak earning years. Take the 35-45% (including state tax) you'll save by not converting and invest it elsewhere, such as in 529s, I bonds, or tax-efficient investments in a taxable account.
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Re: Should I convert to a Roth IRA?

Postby Peter Foley » Thu Jan 24, 2013 1:22 am

If you will be in a lower tax bracket later, it would not be to your advantage to convert a tax deferred holding now. From your posting I sense that the difficulty may be that you have both before tax and after tax contributions to a TIRA. If this is true then your conversions will be pro rated for tax purposes. It doesn't matter that pre tax contributions and post tax contributions are held in separate TIRAs, they all get lumped together for purposes of Roth conversion calculations.
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Re: Should I convert to a Roth IRA?

Postby rickmerrill » Thu Jan 24, 2013 1:47 am

You might find this useful http://whitecoatinvestor.com
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Re: Should I convert to a Roth IRA?

Postby Default User BR » Thu Jan 24, 2013 3:08 am

If you do have taxable amounts in an IRA, a possible solution would be to roll those amounts into the 401(k). That requires the plan to accept such rollovers, and works best if it's a good plan.


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Re: Should I convert to a Roth IRA?

Postby JW Nearly Retired » Thu Jan 24, 2013 12:23 pm

seionage wrote:I'm a physician in the mid-stage of my career (age 45 and been in practice since 1999). I contribute the maximum to my group's available tax-deductible plans (401k and HSA) every year. Can I assume that, when I retire, I will actually be in a lower tax bracket than I am in now? If the answer is "most likely, yes", then does it make any sense to convert tIRA and non-deductible IRA accounts to Roth IRAs?

How much post-tax contributions are in the TIRA accounts compared to the total balance? Roths are much better than non-deductible TIRAs because they are never taxed and are not subject to RMDs. Earnings of non-deductible contributions to TIRAS are. What tax rate will apply in converting the whole TIRA mess to a Roth now before it grows any bigger? Once you do it you can do annual backdoor Roths without any tax burden forevermore. If you are in Texas you don't have state tax on the conversion. I would do it at least to the top of the 28% if you have the space. You don't have to do it all at once..... could stretch if out over several years and just keep the non-deductible contributions going since the contributions portion doesn't get taxed twice.

If you plan to retire early and have years to convert in a low bracket you could wait but if you can afford this conversion now I would not. That lower bracket in retirement turned out to be mythical for me.
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Re: Should I convert to a Roth IRA?

Postby seionage » Sat Jan 26, 2013 1:20 pm

My plan is to roll over my tIRA to my TSP (my military retirement account). Then, I'll set up a back door Roth IRA. Hopefully, this will be a good plan in the long run.
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Re: Should I convert to a Roth IRA?

Postby JW Nearly Retired » Sat Jan 26, 2013 1:23 pm

seionage wrote:My plan is to roll over my tIRA to my TSP (my military retirement account). Then, I'll set up a back door Roth IRA. Hopefully, this will be a good plan in the long run.

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Re: Should I convert to a Roth IRA?

Postby seionage » Sat Jan 26, 2013 1:28 pm

Thanks for all the great advice, guys!
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