OPINION: Are you super bullish on the investment outlook? Do you expect to be paying a similar marginal tax rate in retirement to your current one? Ask yourself these questions before rushing to do the Roth conversion.
A reader has just written in urging me to take another look at Roth IRAs. This follows my previous column, in which I said I was wary of them, partly because I figured I’ll be paying a lower tax rate in retirement than I am while I’m working.
I’m coming back to this topic because he raises a very good issue — and because Congress is considering slamming the Roth IRA door closed for good for upper-middle-class earners. So we might only have a few months to make this big financial decision, which could have an outsized effect on how much money we have in retirement.
Second, if you expect to be paying a similar marginal tax rate in retirement to the one you are paying now, you should also lean toward the Roth.The reader illustrated his point by imagining someone in the 24% federal tax bracket while working and the 22% tax bracket in retirement, and who earns 8% a year on average on his or her investments.
Seems to me, I’d only have to worry about that as a major issue if my retirement plans are loaded by the time I retire — and in that case I’m not so worried about the taxes. My real concern isn’t with how much I pay in tax, but how much I’m going to have left on which to retire. My worry is about paying extra taxes now, at high marginal rates, and then having to tighten my belt when I’m in my 80s .
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