Robert from FL posted over 5 years ago:

At retirement(year end),how to convert a 401k lump sum to a Roth IRA avoiding taxes?

George from TX posted over 5 years ago:

I don't understand the benefit ... the costs outweigh the benefits as I understand it.

1. You liquidate current IRA accounts ... which means you pay the IRS this year on your total IRA amount as "normal income".

2. You can invest the remainder in a Roth IRA, where future growth is "tax free".

Oops ... #1 forces me into approx. 50% tax bracket for the conversion year ... meaning I have to double my remaining investment to "break even" ... then, in theory, I've lost the inflation rate or "opportunity cost" in economic terminology.

Additionally, as a "retired" person, I make quarterly withdrawals from these IRA accounts - supplementing Social Security for living expenses.

Roth accounts seem to be a great idea for young people ... BUT not so good an idea for those of us who are retired.

Am I missing something?

Richard from NJ posted over 5 years ago:

I would like to hear the particulars of this posting

Paul from MD posted over 5 years ago:

You are absolutely right, Robert. I am 68 and work part time. New money I put in a Roth; but I have not touched my IRA because of the tax bite. When I start withdrawing my income will be less and the tax bite smaller.

Dan from FL posted over 5 years ago:

(63) I have the same opinion. I looked at converting and found no benefit other than estate planning. I think a Roth is treated differently and would benefit our heirs, possibly?

Suzane from NV posted over 5 years ago:

Conversion does not need to be all or nothing as I understand it. I am converting a portion of my IRA to Roth so that I will have a liquid source of funds free from AMT preference. Also, with Medicare cost brackets changing and cost for higher income rising I am trying to think about future MAGI levels. At least for a change we know what AMT will be doing for two years instead of just one.

Kevin from CO posted over 5 years ago:

I think Robert's sceanrio is an interesting one. The ROTH IRA seems to make more sense for those of us in the "planning for retirement phase". I am 51 and just converted a fair portion of my investments into a ROTH. With increased pressure on taxes, the conversion seemed wise. I now have 15+ years to contribute to it and let it grow. That being said, I am going to write the IRS a nice check this year. OUCH! Time is on my side, now I just need to invest wisely. AAII is helping me with that.

Hudson from IA posted over 5 years ago:

(34) All these comments make good sense and provide some nice perspective. I did convert all of two previous 401ks simply because I knew this was the last time I could spread them over two years. I considered doing it slowly over time, but I expect my tax bracket to increase as my income (hopefully) increases. As a younger person I made the switch, but were I near retirement I would not get too excited about a conversion unless I had a GREAT reason to do it.

Stanley from NV posted over 5 years ago:

The ROTH IRA should be maximized each year with the thought of leaving it to love ones who will benefit the most from the investment or to charity but never left to the local,state or federal governmental bodies.....

Nathan from OH posted over 4 years ago:

This is my first post so hope I can ask a question not related to the issue above?

When we start withdrawing from our investments for retirement, is it better to draw down IRAs first or non-deferred accounts?

Anthony Diana from NY posted over 3 years ago:

I make withdrawals first from my Non- IRA Accounts first, since the taxes are already paid. Once I reached 70 and 1/2 I had to take MRD's out every year or face a 50% fine from the Government. I take these withdrawal out of my Money Market IRA so that it will not effect my equity portion of my IRAs. If possible, it's usually better to wait till after you retire to withdraw from IRAs so you can pay less taxes. I did not convert to Roth IRAs, since you would have to pay up-front taxes!

Steve from PA posted about 1 year ago:

I have some issue with Myth#1. Some people say 70% some say 100% but I think they all suffer from thinking one size fits all. I would think, or hope, that most members here are investing for retirement and try to reduce or elimate debt. If you are living on $100,000 a year but are investing $20,000 a year and making mortgage payments of $30,000 a year you are really lviing on $50,000. Instead of using a percentage why not look at your current spending, remove anything you won't be paying in retirement, add in any new expenses and increase for inflation?

I also think it is a shame that there are no new or current articles dealing with retirement on the site. Retirement is one of, if not the largest reason to be investing. It would seem from the comments that a good article on IRA conversions would help a lot of the members.

Don Bain from OR posted 9 months ago:

I agree with Steve. With so many of us crossing the threshold of retirement age, and retirement/estate planning being a big important topic which necessarily overlaps with investing, AAII should be providing a lot more on these topics. AAII should even offer a whole section in print and on line covering such issues.

Personally, the idea of devoting my time, attention & energy to baby sitting a portfolio of individual stocks and other asset class investments is about as appealing as cleaning the house daily. It's not a hobby or shouldn't be another job!

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