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roth conversion thoughts

September 1st, 2008 at 02:50 am

When I woke up this morning, I had a thought.

I've increased my 403B withholding up, near the limit of $15.5K. I did this to counter-balance the gains in my taxable accounts. (2007, I paid a bit of tax because of dividends, interest income, and capital gains).

Well, unless there is going to be a freak stock market rise, I'm not going to have a ton of gains for 2008. No gains to pay tax on and a big 403B increase in withholding means that I might be looking at a big refund.

Maybe I can treat this paper refund strategically. For 2005 and 2006, I put 5K in a traditional IRA. I'm thinking it might be better to convert these IRAs into Roths and balance the taxes on that against my refund.

Time to do a bit more research. I know I have to do this by the end of December.

2 Responses to “roth conversion thoughts”

  1. retire@50 Says:

    You need to consider what tax bracket you think you will be in when you retire. If you are in a high bracket now it makes more since to take the tax deduction and save the difference. I.E. 5000 x .30% taxes means you don't have to pay $1500 in taxes and can invest that money now and it will earn money too. You can convert when you retire and are in a lower tax bracket.

    If you are in a low tax bracket now and think you will be in a higher one when you retire then it's better to pay the taxes now. I knew I would be in a lower tax bracket when I retired so I always maxed out the tax deferred options until they weren't options anymore and then I did the Roth IRA and then pre-paid my mortgage or invested in after tax funds with any other money.

  2. Broken Arrow Says:

    retire@50 hits on probably the biggest point. Even if you are in a low tax bracket, you don't want to convert so much that you end up paying some in higher ones.

    Of course, since you are Baselle, I'm sure you knew all of this already. Big Grin All else being equal, yeah, I think time like these are better to convert than perhaps later in that you can get more per NAVs or shares converted than otherwise.

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