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Is the Roth always greener?

July 29, 2014

As the Kiplinger Tax Letter points out, with tax reform on the back burner, it is going to be much tougher to decide on Roth IRA conversions. The key to a Roth conversion is having a sense of what future tax rates are going to be—at least having a decent sense of what the trends might look like. And, without a good idea of what that will be, it becomes much more difficult to make an informed and strategic decision.

Here’s how to think about it: If you expect your marginal tax rate will be the same or greater in retirement, you may want to go ahead and convert over to a Roth (as long as you do not have to tap into the converted funds to pay the tax). On the other hand, if you think your marginal tax rate will possibly be lower in retirement, then it is likely not worth it to you to perform a conversion—you will likely be paying more tax on the conversion than you would owe later on.

These are just general tax-based guidelines (and, unfortunately, this rule of thumb will be less helpful if tax reform is on the back burner). I will have some more detail about what to think about when considering a conversion in my next blog post.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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