[waiting for bottom]

Let me be clear on one thing:

No matter what assumptions you use, if you think taxes will be higher when you pull out the money than they are when you put the money in, the Roth will win every single time.

[waiting for bottom]

Let me be clear on one thing:

No matter what assumptions you use, if you think taxes will be higher when you pull out the money than they are when you put the money in, the Roth will win every single time.

[waiting for bottom]

Let me be clear on one thing:

No matter what assumptions you use, if you think taxes will be higher when you pull out the money than they are when you put the money in, the Roth will win every single time.

[waiting for bottom]

Let me be clear on one thing:

No matter what assumptions you use, if you think taxes will be higher when you pull out the money than they are when you put the money in, the Roth will win every single time.

[waiting for bottom]

Let me be clear on one thing:

No matter what assumptions you use, if you think taxes will be higher when you pull out the money than they are when you put the money in, the Roth will win every single time.

[waiting for bottom]

Similar answer, same advice.

Let’s say the $3,000 is not ‘piss away’ money, but money you would have otherwise invested.

In 10 years that $3,000 is worth $7,781 (familiar number? It’s the benefit from my previous scenario – no coincidence). But you have to pay tax on the gain of $4,781 – at 30% that’s $1,434 in taxed that you have to pay because that money is not in a Roth.
*********************************
So let’s summarize all the options now that I know you won’t get the $3,000 from fluff.

To answer your specific question, at a 10% return and 30% tax rate – the time value of money is more than offset by the tax savings as long as you don’t use the IRA funds to pay the taxes.

Keep as-is:
$10,000 today will be worth $25,937 pre-tax, $18,156 post tax.

Convert and pay from other investments:
$10,000 today will be worth $25,937 pre and post tax (Roth)
You gave up $3,000 that would have turned into $7,781 pre tax and $6,347 post tax ($4,781 gain x 30%).
If you subtract this opportunity cost, your post tax amount in this scenario is $19,590. You saved $1,434 in taxes. Multiply that by every $10,000 you convert to get your savings.

This is the benefit of paying the taxes on the Roth conversion from funds other than the Roth. The benefit only gets bigger if you think taxes will increase in the future. If you have to pull it from the Roth, it makes no sense.

Unless…you believe taxes will be higher in the future.

[waiting for bottom]

Similar answer, same advice.

Let’s say the $3,000 is not ‘piss away’ money, but money you would have otherwise invested.

In 10 years that $3,000 is worth $7,781 (familiar number? It’s the benefit from my previous scenario – no coincidence). But you have to pay tax on the gain of $4,781 – at 30% that’s $1,434 in taxed that you have to pay because that money is not in a Roth.
*********************************
So let’s summarize all the options now that I know you won’t get the $3,000 from fluff.

To answer your specific question, at a 10% return and 30% tax rate – the time value of money is more than offset by the tax savings as long as you don’t use the IRA funds to pay the taxes.

Keep as-is:
$10,000 today will be worth $25,937 pre-tax, $18,156 post tax.

Convert and pay from other investments:
$10,000 today will be worth $25,937 pre and post tax (Roth)
You gave up $3,000 that would have turned into $7,781 pre tax and $6,347 post tax ($4,781 gain x 30%).
If you subtract this opportunity cost, your post tax amount in this scenario is $19,590. You saved $1,434 in taxes. Multiply that by every $10,000 you convert to get your savings.

This is the benefit of paying the taxes on the Roth conversion from funds other than the Roth. The benefit only gets bigger if you think taxes will increase in the future. If you have to pull it from the Roth, it makes no sense.

Unless…you believe taxes will be higher in the future.

[waiting for bottom]

Similar answer, same advice.

Let’s say the $3,000 is not ‘piss away’ money, but money you would have otherwise invested.

In 10 years that $3,000 is worth $7,781 (familiar number? It’s the benefit from my previous scenario – no coincidence). But you have to pay tax on the gain of $4,781 – at 30% that’s $1,434 in taxed that you have to pay because that money is not in a Roth.
*********************************
So let’s summarize all the options now that I know you won’t get the $3,000 from fluff.

To answer your specific question, at a 10% return and 30% tax rate – the time value of money is more than offset by the tax savings as long as you don’t use the IRA funds to pay the taxes.

Keep as-is:
$10,000 today will be worth $25,937 pre-tax, $18,156 post tax.

Convert and pay from other investments:
$10,000 today will be worth $25,937 pre and post tax (Roth)
You gave up $3,000 that would have turned into $7,781 pre tax and $6,347 post tax ($4,781 gain x 30%).
If you subtract this opportunity cost, your post tax amount in this scenario is $19,590. You saved $1,434 in taxes. Multiply that by every $10,000 you convert to get your savings.

This is the benefit of paying the taxes on the Roth conversion from funds other than the Roth. The benefit only gets bigger if you think taxes will increase in the future. If you have to pull it from the Roth, it makes no sense.

Unless…you believe taxes will be higher in the future.

[waiting for bottom]

Similar answer, same advice.

Let’s say the $3,000 is not ‘piss away’ money, but money you would have otherwise invested.

In 10 years that $3,000 is worth $7,781 (familiar number? It’s the benefit from my previous scenario – no coincidence). But you have to pay tax on the gain of $4,781 – at 30% that’s $1,434 in taxed that you have to pay because that money is not in a Roth.
*********************************
So let’s summarize all the options now that I know you won’t get the $3,000 from fluff.

To answer your specific question, at a 10% return and 30% tax rate – the time value of money is more than offset by the tax savings as long as you don’t use the IRA funds to pay the taxes.

Keep as-is:
$10,000 today will be worth $25,937 pre-tax, $18,156 post tax.

Convert and pay from other investments:
$10,000 today will be worth $25,937 pre and post tax (Roth)
You gave up $3,000 that would have turned into $7,781 pre tax and $6,347 post tax ($4,781 gain x 30%).
If you subtract this opportunity cost, your post tax amount in this scenario is $19,590. You saved $1,434 in taxes. Multiply that by every $10,000 you convert to get your savings.

This is the benefit of paying the taxes on the Roth conversion from funds other than the Roth. The benefit only gets bigger if you think taxes will increase in the future. If you have to pull it from the Roth, it makes no sense.

Unless…you believe taxes will be higher in the future.

[waiting for bottom]

Similar answer, same advice.

Let’s say the $3,000 is not ‘piss away’ money, but money you would have otherwise invested.

In 10 years that $3,000 is worth $7,781 (familiar number? It’s the benefit from my previous scenario – no coincidence). But you have to pay tax on the gain of $4,781 – at 30% that’s $1,434 in taxed that you have to pay because that money is not in a Roth.
*********************************
So let’s summarize all the options now that I know you won’t get the $3,000 from fluff.

To answer your specific question, at a 10% return and 30% tax rate – the time value of money is more than offset by the tax savings as long as you don’t use the IRA funds to pay the taxes.

Keep as-is:
$10,000 today will be worth $25,937 pre-tax, $18,156 post tax.

Convert and pay from other investments:
$10,000 today will be worth $25,937 pre and post tax (Roth)
You gave up $3,000 that would have turned into $7,781 pre tax and $6,347 post tax ($4,781 gain x 30%).
If you subtract this opportunity cost, your post tax amount in this scenario is $19,590. You saved $1,434 in taxes. Multiply that by every $10,000 you convert to get your savings.

This is the benefit of paying the taxes on the Roth conversion from funds other than the Roth. The benefit only gets bigger if you think taxes will increase in the future. If you have to pull it from the Roth, it makes no sense.

Unless…you believe taxes will be higher in the future.

[waiting for bottom]

[quote=PatentGuy]Bottom Waiter –

Regarding equities v. cash, maybe I don’t understand what you mean, but I thought this was account-based. For example, we have an IRA account funded through the years by a couple of rollover 401ks from past employers. The money within the IRA account, for better and worse, is invested in several different equity funds. If we sell the funds and buy T-bills, or the like, the monies are still under the “umbrella” of the same IRA account.

We are in the max tax bracket (net incremental Fed and Cal is around 42% excluding SEF taxes which are not avoided by these plans). If we “convert” one or more of our existing IRA, 401k, 403b, 457 accounts to after-tax Roth status by paying the taxes in a lumpo sum, can we continue to contribute the same annual amounts to the accounts “after tax” from now on, despite our income being over the traditional Roth limits?

Or, can we just “convert” what we have in the pot as of Jan 1, 2010, and then go back to before-tax contributions (making for an accounting Cluster Shucks situation by the time we retire)?

I’ll take all free advice from anyone who has some insight on this stuff. Thanks.[/quote]

Yes, your umbrella comment is correct. This means you are able to convert to cash if you want, without get hit with a tax bill.

The conversion law has no expiration. Even though you cannot contribute to the Roth in 2010 or 2011, you can convert prior year’s contributions in traditional every year going forward. Crazy, huh? No wonder everyone complains about our tax system.

By the way, your initial lump conversion tax might not be as large as you think. I assume you have been making post-tax contributions to traditional IRA’s since your income limit is too high for the Roth. The only portion taxable upon conversion is the gain on the post-tax amount. Your tax returns should have a running tally of the tax basis of your traditional IRA’s on form 8606.

[waiting for bottom]

[quote=PatentGuy]Bottom Waiter –

Regarding equities v. cash, maybe I don’t understand what you mean, but I thought this was account-based. For example, we have an IRA account funded through the years by a couple of rollover 401ks from past employers. The money within the IRA account, for better and worse, is invested in several different equity funds. If we sell the funds and buy T-bills, or the like, the monies are still under the “umbrella” of the same IRA account.

We are in the max tax bracket (net incremental Fed and Cal is around 42% excluding SEF taxes which are not avoided by these plans). If we “convert” one or more of our existing IRA, 401k, 403b, 457 accounts to after-tax Roth status by paying the taxes in a lumpo sum, can we continue to contribute the same annual amounts to the accounts “after tax” from now on, despite our income being over the traditional Roth limits?

Or, can we just “convert” what we have in the pot as of Jan 1, 2010, and then go back to before-tax contributions (making for an accounting Cluster Shucks situation by the time we retire)?

I’ll take all free advice from anyone who has some insight on this stuff. Thanks.[/quote]

Yes, your umbrella comment is correct. This means you are able to convert to cash if you want, without get hit with a tax bill.

The conversion law has no expiration. Even though you cannot contribute to the Roth in 2010 or 2011, you can convert prior year’s contributions in traditional every year going forward. Crazy, huh? No wonder everyone complains about our tax system.

By the way, your initial lump conversion tax might not be as large as you think. I assume you have been making post-tax contributions to traditional IRA’s since your income limit is too high for the Roth. The only portion taxable upon conversion is the gain on the post-tax amount. Your tax returns should have a running tally of the tax basis of your traditional IRA’s on form 8606.

[waiting for bottom]

[quote=PatentGuy]Bottom Waiter –

Regarding equities v. cash, maybe I don’t understand what you mean, but I thought this was account-based. For example, we have an IRA account funded through the years by a couple of rollover 401ks from past employers. The money within the IRA account, for better and worse, is invested in several different equity funds. If we sell the funds and buy T-bills, or the like, the monies are still under the “umbrella” of the same IRA account.

We are in the max tax bracket (net incremental Fed and Cal is around 42% excluding SEF taxes which are not avoided by these plans). If we “convert” one or more of our existing IRA, 401k, 403b, 457 accounts to after-tax Roth status by paying the taxes in a lumpo sum, can we continue to contribute the same annual amounts to the accounts “after tax” from now on, despite our income being over the traditional Roth limits?

Or, can we just “convert” what we have in the pot as of Jan 1, 2010, and then go back to before-tax contributions (making for an accounting Cluster Shucks situation by the time we retire)?

I’ll take all free advice from anyone who has some insight on this stuff. Thanks.[/quote]

Yes, your umbrella comment is correct. This means you are able to convert to cash if you want, without get hit with a tax bill.

The conversion law has no expiration. Even though you cannot contribute to the Roth in 2010 or 2011, you can convert prior year’s contributions in traditional every year going forward. Crazy, huh? No wonder everyone complains about our tax system.

By the way, your initial lump conversion tax might not be as large as you think. I assume you have been making post-tax contributions to traditional IRA’s since your income limit is too high for the Roth. The only portion taxable upon conversion is the gain on the post-tax amount. Your tax returns should have a running tally of the tax basis of your traditional IRA’s on form 8606.

[waiting for bottom]

[quote=PatentGuy]Bottom Waiter –

Regarding equities v. cash, maybe I don’t understand what you mean, but I thought this was account-based. For example, we have an IRA account funded through the years by a couple of rollover 401ks from past employers. The money within the IRA account, for better and worse, is invested in several different equity funds. If we sell the funds and buy T-bills, or the like, the monies are still under the “umbrella” of the same IRA account.

We are in the max tax bracket (net incremental Fed and Cal is around 42% excluding SEF taxes which are not avoided by these plans). If we “convert” one or more of our existing IRA, 401k, 403b, 457 accounts to after-tax Roth status by paying the taxes in a lumpo sum, can we continue to contribute the same annual amounts to the accounts “after tax” from now on, despite our income being over the traditional Roth limits?

Or, can we just “convert” what we have in the pot as of Jan 1, 2010, and then go back to before-tax contributions (making for an accounting Cluster Shucks situation by the time we retire)?

I’ll take all free advice from anyone who has some insight on this stuff. Thanks.[/quote]

Yes, your umbrella comment is correct. This means you are able to convert to cash if you want, without get hit with a tax bill.

The conversion law has no expiration. Even though you cannot contribute to the Roth in 2010 or 2011, you can convert prior year’s contributions in traditional every year going forward. Crazy, huh? No wonder everyone complains about our tax system.

By the way, your initial lump conversion tax might not be as large as you think. I assume you have been making post-tax contributions to traditional IRA’s since your income limit is too high for the Roth. The only portion taxable upon conversion is the gain on the post-tax amount. Your tax returns should have a running tally of the tax basis of your traditional IRA’s on form 8606.

[waiting for bottom]

[quote=PatentGuy]Bottom Waiter –

Regarding equities v. cash, maybe I don’t understand what you mean, but I thought this was account-based. For example, we have an IRA account funded through the years by a couple of rollover 401ks from past employers. The money within the IRA account, for better and worse, is invested in several different equity funds. If we sell the funds and buy T-bills, or the like, the monies are still under the “umbrella” of the same IRA account.

We are in the max tax bracket (net incremental Fed and Cal is around 42% excluding SEF taxes which are not avoided by these plans). If we “convert” one or more of our existing IRA, 401k, 403b, 457 accounts to after-tax Roth status by paying the taxes in a lumpo sum, can we continue to contribute the same annual amounts to the accounts “after tax” from now on, despite our income being over the traditional Roth limits?

Or, can we just “convert” what we have in the pot as of Jan 1, 2010, and then go back to before-tax contributions (making for an accounting Cluster Shucks situation by the time we retire)?

I’ll take all free advice from anyone who has some insight on this stuff. Thanks.[/quote]

Yes, your umbrella comment is correct. This means you are able to convert to cash if you want, without get hit with a tax bill.

The conversion law has no expiration. Even though you cannot contribute to the Roth in 2010 or 2011, you can convert prior year’s contributions in traditional every year going forward. Crazy, huh? No wonder everyone complains about our tax system.

By the way, your initial lump conversion tax might not be as large as you think. I assume you have been making post-tax contributions to traditional IRA’s since your income limit is too high for the Roth. The only portion taxable upon conversion is the gain on the post-tax amount. Your tax returns should have a running tally of the tax basis of your traditional IRA’s on form 8606.

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