blessed wrote:PVW wrote:If your marginal tax rate is the same now as it will be in retirement, there is no advantage or penalty for a backdoor Roth conversion. You either pay taxes now on the conversion, or later on the withdrawal. Taking money out of a traditional/rollover IRA is best done when you are in a low tax bracket. A conversion is often done to take advantage of situations where your tax rate is low (e.g., during unemployment or early retirement). If your marginal tax rate will be lower in retirement, then you should keep the traditional IRA and pay taxes on it during retirement.
There are many complicating factors. It's difficult to predict your future tax rate and any changes to the tax code. The conversion is added to your income, so it can push you into a higher marginal rate. A source of tax free money in retirement can help with tax planning.
I think you're misunderstanding. I do a backdoor roth every year and there is effectively no tax on the conversion as it is done within a day of the contribution to the traditional. The back door roth seems to be a no-brainer, unless I complete misunderstand something.
Yes, sorry, a misunderstand on my part. I thought you were converting an old traditional pre-tax or rollover IRA to a Roth. But it sounds like you are converting a non-deductible IRA to Roth (i.e., a Backdoor Roth, just as you said).