deciding whether to recharacterize my Roth IRA at tax time

[Guest haharvey]

Last year I converted a regular IRA to a Roth IRA. When my spouse and I computed our taxes, we get a higher return (by about $140) if we file separately rather than jointly. But this would mean I would have to recharacterize my Roth back to a traditional IRA. Any advice?

[Kathy]

I don't think $140 is a very high price to pay for tax-free income down the road but I guess we need a little more information - your age, the amount you converted, when do you want to retire, will you need this money for retirement or would you like to be able to let it grow tax-free for your heirs, etc...

[Guest haharvey]

I am 29. I converted just under $2000. We want to retire around 60-65 and I plan on using this Roth IRA for retirement. I also will probably not contribute more to it until I am no longer a student. If I have a regular income in 2000, then I plan to begin adding to it at that time.

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haharvey

[John G]

Another Q I would ask is what would you do with the 2,000 if you don't Roth? I like the Roth a lot better than a regular IRA given your age. I am presuming that your alternative would not be spending it.

I also value my time highly and would not want to complete two tax returns (even simple ones) instead of just one.

The $140 seems awfully small compared to the 30+ years of tax free compounding and subsequent tax free payout. The 2,000 invested now at 10% per year doubles every 7 years... that mean 4,8,14,32..... $64,000 after tax when you are 66 yrs old. That $2,000 might be equivalent to one years living expense in retirement, depending upon inflation and how you might spend your $.