IMO, The only reason to convert to a Roth is to save money (taxes) when you have to start taking RMDs. Plus, there are good times and there are bad times when to do the conversion.
This is only my opinion and I’m not a cfp or tax guy.
Let me start on the good time to convert: that would have been in 2007/2008 and during the pandemic in 2020, both times (if you were still invested) your holdings were down 35-50% and if you would have did the conversion then (especially in 2020 with the “v” shaped recovery) you would have saved thousands and maybe hundreds of thousands in taxes doing the conversion and then in a matter of a few months (2020) or a few years (2007-2008) your investments would be back to what they were, and then tax free and you paid lower taxes. If you do the conversion now, you are paying higher taxes because the last couple of months the market has gone up. Plus, I think we are heading into a recession later this year so why pay more taxes when the market might be way cheaper months from now?
The other reason why I have held off doing a conversion is because congress has been making changes to ira/401k accounts that favor us oldies, for example, delaying the age to start taking RMDs. Maybe before I’m 73 they will change it again to 75 or so. Also, who knows what the tax rate will be then for seniors? Will it be the same, different, better, worse?
The other drawback doing a conversion is you don’t know what the landscape will look like 5 years from now. The Roth acct will only be worth it if the market grows by a good margin after the conversion so you pay taxes on the lower amount. But what if your money is worth less in 5 years? You paid X amount of taxes in say 2023 at conversion time, do you know for sure you will be better off?
If you don’t need the money from your non-taxable accts, create a Roth account now and when you do need to do an rmd, take that money after paying the taxes and put the rest in the Roth IRA so future gains (if any) will be tax free.
|