回複：Tax question regarding New 2006 IRA rule

It may not be the right place for discussing IRA, but I will respond any way.
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If one can contribute to Roth IRA, it is great regardless of your tax bracket, so you should definitely do it. However, converting your regular IRA to Roth IRA now or in 2010 may not be a good idea for those who are currently or in 2010 in a high tax bracket. I did the math once a few years ago when we had a chance to do the conversation. I decided not to do it.

Say John is 40 years old now and currently has $100K in regular IRA. Assume his Fed tax bracket is 25% now and will be the same at age of 65 when he withdraws the money from the IRA account. Further, assume the investment gain is 7% per year. Keep in mind that Roth IRA does not need to pay tax on the gain while regular IRA needs to when John withdraw the money. You can use the spread sheet and will find out that it makes no different whether John does the conversion, i.e., he will receive the same amount after-tax money.

You may ask: “How come?” The reason is that if John does conversation now, he has to pay tax now, so he will end up with the principal of $75K after taxing for investment. Therefore, he has much less principal after the conversation to start with.

Now assume Mike has everything same as John, except that Mike’s tax bracket will be 15% at age of 65 when he withdraws the money from IRA. Surprisingly, you will find that it is really a bad idea if Mike converts his regular IRA to Roth IRA right now.

Since like Mike most of us will make less money after age of 60 and thus will be in a lower tax bracket then, you need to do a thorough study to determine whether you want to do the conversation in 2010.

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• Thank you very much! But if the AGI is too high, that new -MDGG- ♂ (257 bytes) () 02/16/2007 postreply 08:22:19