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Converting Traditional IRA to Roth

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Is there any rule of thumb when it does/doesn’t make sense to convert a traditional IRA to Roth IRA?

For example, 1) if your AGI is > $XXX, then do not convert. 2) If you’re over 55 and your timeframe for drawing the funds is < YYY years, then do not convert.

I’m currently have a nice size traditional IRA and when using one of the online conversion tools (e.g. Fidelity), I would have to pay a pile of taxes but over the long term it would be beneficial. Hard pill to swallow!

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    Pinyo on Jun 02, 2010

    We have a good article that discuss traditional IRA versus Roth IRA. The specific rule of thumb the author offered was to live within the 15% tax bracket. Exactly what this means? If you marginal tax rate is above 15%, then contribute to Traditional IRA to lower your taxable income and move you back into the 15%. If you are in the 15% tax bracket or lower, then contribute to Roth IRA.



  • 0 Votes Thumb up 1 Thumb down 1

    JoeTaxpayer on Jun 02, 2010

    Hey, that was my guest post here. I just took a look at it, and the advice stands.

    If you shared specific details, that advice might get adjusted a bit. The intent when I wrote it was to hit the widest audience possible.

    Factors such as age, income (actual current net taxable), and current savings would help tweak the analysis. Keep in mind, it’s not an ‘all or none’ decision. Those for whom the Roth conversion makes sense should almost certainly choose the amount very carefully, not convert 100%.


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