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Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience:  I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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Customer Question

I am 56 years old. I am retired. I supplement my pension with capital gains and dividends. Eventually, I will need money from my IRA. I think it makes sense to transfer some money from the IRA to a ROTH IRA from now until I am 59.5. How much should I withdraw. Up to the 25% bracket? Up to the 28% bracket? Up to the 33% bracket? What do you expect taxes will be in 2009, 2010, etc? What do you expect will happen with the new tax legislation. I am thinking that I should get the money out and pay the taxes instead of waiting for Uncle Sam to jack the rates up even higher. What do you think?
Submitted: 11 years ago.
Category: Tax
Expert:  Jon Andrews replied 11 years ago.

No one can accurately predict what Congress will do regarding the tax law next year much less 4, 5, or 6 years in the future. Having said that, it seems more likely that rates will go up rather than down since they are currently at a relatively low point, historically speaking. 


The downside to your idea is that you lose a chunk of your principal now and, therefore, you also lose the tax-deferred earnings on that amount. For example, if you convert $30,000 from regular to Roth and pay tax at the 25% rate, you lose $7,500 in principal and, given your time frame, it may be difficult to make up the difference.


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Customer: replied 11 years ago.
Reply to Jon Andrews's Post: Thank you for your answer. However, you haven't given me information that I don't already have.

I need graphs and charts that allow me to change the assumptions such as investment withdrawl amount, returns, and possible tax rates. I need to see the outcome for different scenarios.    

Let's assume taxes of 30%. I pay 30% taxes now or I pay 30% later. Let's also assume I can double my money in 5 years.

Regarding the downside you sighted, assume my proposed withdraw amount is $100,000. Under the withdraw now scenario, I am taxed now and am left with $70,000. That $70,000 doubles in a ROTH and becomes $140,000 in five years.

Under the withdraw later scenario, my $100,000 doubles and I have $200,000 in five years. I pay the 20% taxes then and am still and left with only $140,000.

Then again, what if... I still don't know what to do.      




Expert:  Jon Andrews replied 11 years ago.

Try this link http://www.msco-cpa.com/rothira.htm


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