A lot can change between now and retirement (depending on your age), and I have no faith that Congress will keep the full tax exemption for withdrawals from Roth IRAs in place. Why convert now -- and pay income tax on the conversion -- and run the risk of getting it taxed again?
For people just out of college, or those who have never invested before and are starting from scratch, there is no doubt that a Roth IRA is the one to start vs. the traditional.
But for people with large accounts in traditional IRA’s - I see your point 100%.
When the time is right, the govenment will simply vote themselves every last penny belonging to the boomers (and any remaining parents of boomers).
Mr. niteowl77
Anyone, and I mean ANYONE, who holds these plans and can draw them down without serious tax consequences should do so forthwith. It may even be the case for some folks that they should begin drawing down without regard to the immediate tax consequences.
Further, for those nearing 59 1/2 (the magic age for penalty-free,but not [necessarily] tax-free, withdrawals), I should strongly recommend converting a healthy chunk of dollar-based assets to assets based in currencies that are heavily supported by hardish assets, Norwegian kroner being perhaps the prime example just now.
Trust government not to mess with retirement plans, for the next 3 years at minimum, and you are a HEAVY favourite to live out your life far poorer than you would be.
Exactly. 10 to 20 years from now, or longer, some people will have millions of dollars of investment income piled up in these accounts and interest rates will be higher.
For example, a person with 15 million dollars at rates of 8% will be earning each year $1.2 million! off of the account. To expect Congress to sit by and watch all this money be earned and spent tax-free is asking a lot. Eventually, they will yield to the next surge of Populist pressure, claim it’s unfair, and tax the bejeezus out of them.
Our financial adviser told us is was not a good idea. With hubby back working again, it would cost too much in taxes. He recommends waiting until he retires again. And not convert all, just part.
“A lot can change between now and retirement (depending on your age), and I have no faith that Congress will keep the full tax exemption for withdrawals from Roth IRAs in place.”
Agreed wholeheartedly.
Given at least 35 TRILLION of unfunded liabilities in social programs and a massive deficit with little economic growth, ROTH IRA holders will be surprised that the Feds can go back on their word.
I just say, they’ve done it before. They can do it again.
They will get your taxes now plus they will tax Roth’s later. Plus they will require you to buy T-bonds with your money so they can use it in the meantime.
Watch...
In fact, I’m not so sure that less government control of retirement isn’t better. I am keeping far more outside the retirement system.
On the one hand, you have the probability of tax rates going up, on the other, the certainty of paying taxes up front. If you have a separate large sum standing by to pay the taxes without cutting into your IRA principal, it might be OK. But if not, your Roth is going to be a lot smaller than your current IRA.