Why Convert to Roth if Close to Retirement? wpt

[Guest wpturner]

I am 55 and will retire in 2 years. I am in the 28% tax bracket. If I convert a portion of my regular IRA to a Roth before 12/31/98 as recommended by the Forbes calculator, I will owe a lot of taxes over the next four years. My tax rate after retirement will be 15%. This means that I will pay taxes at the rate of 28% for the first two years, and 15% for the next two.

I will not need to withdraw from my Roth for at least 10 years. WHY SHOULD I CONVERT THIS YEAR? I plan to convert a portion each year AFTER retirement, if that is allowed. I propose to convert 1/4 of the recommended amount by Forbes each year for four years.I will pay tax all four years at the 15% level. tax, for the same dollar amount of conversion. Even accounting for 10% annual market increases, the total taxes should be less. What do others out there think?

Thanks,

Walt T.

[BPickerCPA]

It sounds like you have it figured correctly. Of course, keep in mind that the income from the conversion is on top of your other income, and could push you into a higher bracket.

But breaking up a conversion to stay in lower tax brackets is a great planning technique.

Obviously, with no knowledge of your entire situation, I can't speak of the advisability of converting vs not converting.

[Guest jane]

If you have any capital gains each year, just be sure to keep your total income i.e income including capital gains, in the 15% tax bracket. Otherwise your long term capital gains will be taxed at 20% instead of 10%.