This only make sense if taxes are going to be higher in the future, which is likely. I just cannot seem to pull the trigger.

Anyone here take the plunge?

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Ben
1987 190d 2.5Turbo

I don't know if there is a real advantage or not, it depends on your current and future income and what may change in the tax code. Personally, I'm not eligible so I haven't really looked into it.

I considered it back the last time the stock market was crashing, but never did. That would be the time to do it, though, if you're going to. I don't trust the government that much. If I take that tax hit now, and Congress figures out someway to tax my income from that Roth IRA down the road, I'd be pretty PO'd, but I would not be surprised.
Besides that, most of my IRA contributions were post tax, because my income used to be a lot higher and I had a 401K at work. That 401K was the only truly pretax money I got to invest for retirement.
So, I haven't been persuaded to take anyomre tax hits before I retire. My house and cars are all paid for. My kids' college education has been taken care of, so I won't really be needing that much to live on when I decide to quit working.

__________________
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Check out Ric Edelman's article on the subject:

http://www.ricedelman.com/cs/education/article?articleId=1499&titleParam=Converting%20an%20IRA%20Annuity%20to%20a%20Roth?

__________________

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In my case, at my age? No, hell no! Never, ever, ever do that (prepay huge amounts of tax) with an IRA that is of sizeable proportion. Your chances of getting whipsawed in the market is so likely after prepaying, is just one reason why you will never make up the difference. Second reason, you're giving up the multiplying effect of the dollars you disperse now. You will never ever be able to use dollars you throw out in taxes. Thirdly, the Roth IRA is not passable to heirs without being taxed. Fourth, no one knows when they'll die way off in the future. Depending on your age, you may or may not be able to make up the multiplying (compounding) effect of the loss of this principle, versus prepaying tax decades ago. Am I happy that my IRA has been growing only tax deferred vs. tax-free since IRAs got their inception date in the mid-'70s? No, but the odds in my IRA's case against prepaying the tax trumps any gains it may make at my age group number. I have since funneled 100% of my annual contributions into the Roth IRA plan since their inception, and of course SEP - IRAs done on years it was advantageous. It's just a guess, but I don't think I will live long enough for the conversion to a Roth's difference, to have made a difference, since I was 48 yrs. old at the time the Roth conversion was made into law. And the performance of the stock market has borne out that I made the correct decision many years ago. I fully expect to leave an estate to a number of entities/persons that can each decide to leave the IRA keep growing unmolested - unlike the Roth that requires being taxed immediately by your heirs.

11 years ago a friend of mine did the conversion to their IRA to a Roth - paying nearly $100K out of pocket to do so. What a mistake of Biblical financial proportions to have done this, as the stock market could have picked up at least $300K on just the money that was thrown away by this person - in addition to the $100K. I was not asked for my opinion of what I would do, so I was just a bystander to this financial accident nearing 1/2 million dollars.

One middle-aged guy, of about 50 yr. old (not you) who shall remain nameless in this post - lest it be considered an insult, made the brainless decision to cash in nearly $10K of their 401K to buy a friggin' old, non-collectable 15+ year old used car, then has left the remainder in CD type instruments ever since. If not true, it would be considered fantasy in the world of retirement strategies....

great points Skid. I have decided not to convert. The opportunity cost (although unknown) is likely to be bigger than the unknown future benefit of the conversion.

I wonder what Dave Ramsey's position is on this one? Do you know?

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Ben
1987 190d 2.5Turbo

What I should say, is that in order to answer any individual's inquiry - I would need to do a quick assessment of their age, and financial situation.

If, if an individual is young enough - the Roth is the way to go, but for a guy of 35 or much older that has had a traditional IRA growing into the six figures to $1M or more? No way!

I listen to Dave Ramsey most every day, Ben. The answer is Dave agrees with my stated stance, on an aging traditional IRA.

Present tense Roth IRA? Dave and I say do it. The Roth gives the best prospects of growth going forward. That's what I started pouring dollars into over 10 years ago - live and learn.

I found this:

http://www.daveramsey.com/article/roth%2Dira%2D101/lifeandmoney%5Finvesting/

I don't know if this is an issue, but the income limits for a Roth eligability are fairly restrictive.

A friend of mine converted into a Roth and got hit with a $48000 tax bill!
It took her a few years to pay that off!

...just sayin'...

__________________
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It only works if you can pay the taxes out of pocket, if you need to use some of the principle to cover the taxes, don't do it.

I think the main advantage is if you know that you'll be in a higher tax bracket in the future. I'm 25, and just starting my career...so, it makes a lot of sense for me.

I don't have any IRA's, but if (perchance) I get laid off before the next fiscal year, I'll roll my Roth 401k into a Roth IRA.

__________________
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Ben, do yourself a favor. Consult a professional advisor, one whose credentials you can verify. For all we know, some forum "financial advisor" could be living in a cardboard box, and has never invested a penny in his life. Your retirement investment decisions are too important to you to rely upon some internet character who may not be who he portrays himself to be.

That is tragic.

Depending on their age, that could easily end up costing them, conservatively $500K to $1M+ in estate assets. However, there are too many unknown scenarios and eventualities to say anything for certain...


However, this is one where there are so many unknowns, it's to a large degree a crap-shoot. That's where my future intellectual planning meter goes into what-if 360* scenarios.

The one that is weighing on my mind now is; if needed in retirement, do I spend non-Roth IRA money before my IRA monies?

Conventional wisdom may favor or dictate spending IRA monies first, but then you are diminishing the value of leaving IRA money options to your heirs. Traditional IRA monies can be left untouched when inherited, unlike Roth IRA monies, which require an immediate taxing event when inherited.

If you spend Roth IRA monies first, you are diminishing the total return on Roth monies to yourself while alive.

Fortunately, I have been able to accrue perhaps enough assets outside all (3) of the IRAs to potentially carry me to death anyway.
In which case I never needed to tap any of the IRAs while alive.

It's a friggin' potential mine field out there in financial land anyway - no matter what you do, generally speaking...

You are entitled to open a non-deductible IRA outside of and in addition to your employer sponsored 401K. At the age of 25 it's a slam dunk to put all you can into any and all IRA instruments.