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Hi, Newbie Roth Question / Stress Test

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  • #1

    Hi, Newbie Roth Question / Stress Test

    Hi, I've always been a saver, so it is nice to find a savers forum.

    OK, so I'm late 30s, and I just left my job after 15 years...so it's time to re-evaluate pretty much everything. :P

    I have about 300k in 401k and another 100k in other brokerage and savings. I'm not married, have no kids and no mortgage...and after my severance is up, no income.

    So my questions is:
    1. Should I do a roth conversion next year? I believe taxes are going up, but not sure what my tax bracket will be in say 2030 when I want to retire. I think my mother pays only like 12%. What tax rate is the conversion?
    Does it make sense for me? Am I subject to capital gains after the conversion, or does it all grow tax free if I do 4 or 5 fund transfers / trades per year?
    Any Roth Experts out there?
    Tags: None
  • #2
    Roth conversions are taxed at your ordinary income tax rate. It's put on the 1040 tax form in the income section.

    All the money will grow tax free after conversion. You can move the money around between different investments, tax free, as long as it stays in your Roth IRA.

    I don't know if you should do one or not. Someone else may have an opinion. You don't have to move it all in one year. In fact, because of taxes, it may be best to do it over time....a portion each year.
    My other blog is Your Organized Friend.

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    • #3
      ccf - I'm guessing OP earns too to convert so is looking to 2010 when the income limit is removed.

      OP, you haven't said what you have in the traditional IRA now. Do you have enough on hand to pay the taxes on the conversion easily?
      Steve

      * Despite the high cost of living, it remains very popular.
      * Why should I pay for my daughter's education when she already knows everything?
      * There are no shortcuts to anywhere worth going.

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      • #4
        Originally posted by disneysteve View Post
        ccf - I'm guessing OP earns too to convert so is looking to 2010 when the income limit is removed.
        I figured this as well. Is the income limit lifted for only one year, or for every year after? I guess I haven't read up on that yet.
        My other blog is Your Organized Friend.

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        • #5
          Originally posted by creditcardfree View Post
          I figured this as well. Is the income limit lifted for only one year, or for every year after? I guess I haven't read up on that yet.
          As of right now, just for 2010. We're going to see lots of "should I convert" threads around here as 2010 nears. I have a traditional IRA that I may want to convert myself, so I'll be one of those looking into this.
          Steve

          * Despite the high cost of living, it remains very popular.
          * Why should I pay for my daughter's education when she already knows everything?
          * There are no shortcuts to anywhere worth going.

          Comment

          • #6
            If it were me, I would only convert the amount in 2010 that I could afford to pay taxes on. It would be a good idea to change withholding for 2010 and/or saving the cash for a larger tax bill
            My other blog is Your Organized Friend.

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            • #7
              at minimum you need to pay taxes with money not invested for retirement to make this work in your favor

              to further tilt things in your favor, only convert up to your income tax bracket limit (do not go into a higher tax bracket for the conversion).

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