Date: Wed, 29 Dec 2004 14:56:41 CST
From: Will Trice 
Subject: Re: Roth Conversion Rule of Thumb?
Newsgroups: misc.invest.financial-plan
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Karen Younge wrote:
> Is there any kind of rule of thumb to tell when it makes sense to
> convert an IRA
> to Roth? I am contemplating retirement in 3 years at age 52. I have
> about $20,000
> in a 457 plan at work, and am wondering whether I should roll it over
> into a trad-
> itional IRA or convert to a Roth (I have both a Roth and a Traditional I
> could roll
> the money into). I expect to have enough money to pay the taxes on the
> rollover
> from sale of a house when I retire. If it makes any difference to the
> decision, my
> income is too high at my current job to make deductible contributions to
> an IRA,
> but I will probably be eligible to do so after retirement-I will need to
> work at least
> part time for several more years in order to supplement my pension and
> continue
> savings for "full" retirement about age 71 or so.
> 
> Karen
> 

 From a "retire with the most money" perspective , a Roth conversion may 
be the right choice assuming you can make the conversion without a 
withdrawal penalty, you pay taxes due to the conversion from funds 
outside the retirement fund (which you are), and you have maximized your 
contributions to other available tax-advantaged investment accounts 
(depending on your investment mix) in the year(s) of the conversion. 
This ignores non-monetary benefit differences between a Roth and other 
investment vehicles, such as when assets must be withdrawn, inheritance 
issues, etc.

Anyway, the question is largely dependent on what you think your tax 
bracket is going to be when you withdraw the money as opposed to what it 
is now.  If your tax bracket will be the same, the conversion should 
have a small advantage; if you will be in a higher tax bracket, the 
conversion is better; but if you will be in a lower tax bracket, not 
converting is probably best.

When trying to figure out what your tax bracket will be, be sure to 
consider another poster's advice from a different thread, the percentage 
tax paid in each bracket may go up just because of the fiscal situation 
that the government is getting us into.  In other words, you may be in 
the middle bracket today and end up in the middle bracket when you 
retire, but that bracket may be paying more tax.  Also, you may want to 
break your Roth conversion up over several years if the full conversion 
amount would bump you up into a higher tax bracket.

Good luck,
-Will