Quote:
Originally Posted by bopat
Best time for Roth conversions, right now.
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Not sure I agree with that statement.
The amount of taxes paid on any conversion is dependent upon your incremental tax bracket. So whether the market is up or down doesn't change that incremental tax bracket.
The potential for tax free social security in the future means than the current incremental tax bracket will start lower for any Roth conversions, so waiting for any changes in the current tax rates will help make the conversion cheaper.
The incremental tax rate determines the payback period, or the time to recoup the taxes paid to get back to same level of wealth as prior to the conversion. The required minimum IRA balance for anyone / everyone is their spending lifestyle requirements. So everyone's individual situation tax and IRA balance should determine the best time to make any conversions.
Finally, the assumption that the markets always go up LONG TERM appears historically true. However, there's not any guarantee, and in retirement or prior to retirement, with an average life expectancy is 78, or 11 years, there is no longer a long term recovery period. There is no guarantee that the market won't continue down, there is no guarantee that after going down, the market will return to anything close to growth of the recent years. And there is no guarantee that any medical procedures will be covered with insurance, and so IRA withdrawals to cover can currently be made tax free or a low tax rate.
Likewise, there is no guarantee that you will be paying taxes on your IRA distributions. My mom's IRA distributions were all tax free for the last 3 years, and would continue to be if she had more, at age 98. Likewise there is no guarantee that Roth IRA distributions will continue to be tax free. What the Congress can give, the Congress can take away. . Congress will more likely be revoke ROTH tax free status if the ROTH becomes a status symbols of the rich, and there is a huge need to more tax dollars, because the treasury can't finance the spending through treasury bonds. .
The only reason that statements like this are being made is that the percentage of the total IRA conversion can be higher, which may or may not be the best balanced investment approach to retirement financial planning. Diversification in income streams is also a valid retirement approach.
good luck to us retirees.