No. of Recommendations: 4
Roth conversions are a nothingburger. All they do is shift which year you pay the tax. The only financial benefit that comes in is if your marginal tax rate NOW is lower than it will be in the future.
Hmmm ... maybe.
Case I: $10,000 stays in IRA, in 10 years it worth $20,000 and RMD is required of $20,000. Marginal tax rate is 24%. Tax is $4,800. After taxes, you have $15,200 in your taxable account.
Case II: $10,000 is converted to Roth IRA, marginal tax rate is 24%, tax is $2,400, you have $10,000 in Roth and it cost you $2,400 from your taxable account. In 10 years, Roth IRA doubled to $20,000, and you have foregone $4,800 in your taxable account. Marginal tax rate is still 24%, so you have foregone paying taxes on $2,400 (the foregone gain in taxable account) of $576. Seems like after 10 years, you are $576 better taxwise. And each year that passes, you become more better off taxwise having done the Roth conversion 10 years earlier. And all the gains in that Roth IRA will never be taxed, and are a little easier to pass to heirs.
Does this make sense to y'all?
