Setting aside my complete lack in trust of government (out of its demonstrated ineptness more than anything else) I’m still not convinced paying the taxes now makes sense. Help me with the math (or the meth, if need be for understanding the numbers).[/quote]
So let’s say you have $10,000 today. If you convert to Roth and pay 30% tax from the funds today, you have $7,000. 10 years from now at 10% per year, that will be worth $18,156.
Keep the same $10,000 without conversion, it will be worth $25,937 in 10 years at 10%. After tax, it is worth $18,156 at 30% tax – same as if you paid the tax today.
Conclusion: Assuming constant tax rates, paying the tax now or paying the tax later is mathematically equivelant. If you think taxes will be higher in the future, you are better off paying them now.
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Next, convert to Roth and pay the 30% or $3,000 tax from other funds that you might have spent on non-productive spending (entertainment, etc.). In 10 years at 10% you have $25,937 Tax Free or $7,781 more than the other scenarios. Even if Obama is still in office when you retire, the gov’t is probably not going to tax Roth’s at 30% (which would get you even with the other scenarios). I bet they will add a Roth Tax in the next 20 years, but more like 5-10%. We’ll see.
