Newbie to Board -- Question re Roth Conversion

[tuni88]

I'm new here so please excuse me if this question has been asked three thousand times already.

I'm seeking a website where I can go to find an interactive tool to input my non-Roth IRA info, personal demographics and whatever else is needed (assumptions regarding the future?) to analyze whether it is likely to be to my advantage to convert my regular IRA to a Roth IRA. Anybody know of such a tool?

Thanks.

[papogi]

Although I haven't tried any of these, here are some:

http://calculators.aol.com/tools/aol/rothira02/tool.fcs

https://personal.vanguard.com/us/RothConversion

http://moneycentral.msn.com/investor/calcs/n_roth/main.asp

[John G]

You don't mention your age, income, state or the amount you were thinking of converting. You might want to add another post and let folks comment. If you are talking about a sizeable conversion, you definitely want to run the idea past your accountant or tax advisor. A few dollars spent on advice might keep you from making a major mistake.

There are many "tools" like this on the web and at specific brokerages and mutual fund families.

Cautions:

1) Some of these calculators fail to include the "opportunity cost" related to the potential growth in assets that are used to pay the taxes. If your tax rates now and in the future are close, then IRA to Roth conversion is more likely to be a wash.

2) Some calculators fail to incorporate income tax in state of residence differences. Example, convert in NY or California, but later take distributions in Texas or Florida which do not currently have state income taxes. Converting in an income tax state, then retiring in a zero income tax state is generally not attractive.

My background is corporate planning and consulting, which includes predicting/forecasting/modeling the future. Many decades of experience has taught me that your risk of uncertainty and "surprises" goes up tremendously over time. For example, me miss on 50% of the events that happen in the next five years, and perhaps 80% of the events fifteen years out. This is sort of a perverse "half-life" of predictions.

You can observe this in your own life. Go back 5 years, then 10 years. Think about what happened over time that you did not predict: births, deaths in family, relocations, promotions, divorce/marriages, illnesses or injury, inheritances, etc.

How does this apply to your question? Well, think about the uncertainty regarding just two things -- (1) income tax brackets/rates and (2) inheritance taxes. Congress likes to change these. Lots of folks assume that their tax rates will go down in retirement because SS/pensions. But, you might have fewer deductions (no mortgage interest if the house paid off) and if you are successful, your dividends, interest and capital gains may keep you in a higher bracket. At some point, taxes may be increased to pay the expanding bills for Iraq, veterans benefits, healthcare, etc.

My observations are that well educated, successful people tend to under estimate their asset growth by a long shot. They tend to think of linear growth, while investing is often expodential or compound growth.