Dave Ramsey says: If you can afford it, convert to a Roth IRA

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  • Brad B Lehi, UT
    July 15, 2013 10:04 a.m.

    Hmm, not sure I agree with the math, Joe. If I'm in a 50% tax bracket, that means paying $50,000 in taxes for my $100,000 conversion. Scary stuff, yes. However, if the 100,000 grows at 8% over 30 years, it will have grown to over $1,000,000. So the $900,000 in growth is now tax free, whereas in a standard IRA I would need to pay tax on whatever I take out in retirement, admittedly at a lower rate. Taking just a bit out each year, I'd say it's not going to take long to add up to more than $50K. Sorry not a financial advisor, but seem to me Mr. Ramsey has a good mathematical point here...

  • Joe C Sandy, UT
    July 10, 2013 10:36 a.m.

    Keep in mind that converting to a Roth IRA is generally only advantageous if you plan on being in a higher tax bracket when you retire. If you are currently in the 25%+ tax bracket then you may pay more by deciding to pay taxes now(by converting to a Roth) rather than when you retire. On top of that, any funds that you roll over to Roth are treated like income. By rolling a large amount of funds over you may very well be pushing yourself into a higher tax bracket, making the conversion even less advantageous.