| Table 5. Keeping Assets in a Deductible IRA vs. Converting: Current Retirees (A 65-Year-Old Investor Converting $100,000) | |||||||
| Marginal Tax Rate in Retirement (%) |
Total Aftertax Withdrawals in Retirement | Conversion Advantage (Disadvantage) | When Converting is Worthwhile | ||||
| Roth IRA ($) |
Deductible IRA ($) |
Taxable Side Acct ($) |
Total Value of Deductible IRA Plus Taxable Side Account ($) |
($) | (%) | ||
| 19.75% | $205,610 | $166,030 | $53,653 | $219,683 | ($14,073) | -6.4% | Never |
| 28.75 | 205,610 | 146,497 | 53,323 | 199,820 | 5,790 | 2.9 | Always |
| 31.60 | 205,610 | 140,637 | 53,224 | 193,861 | 11,749 | 6.1 | Always |
| 38.25 | 205,610 | 126,964 | 52,994 | 179,958 | 25,652 | 14.3 | Always |
| The assumptions for this table are the same as for Table 1, except that during accumulation the investor is at the bottom of the 25% federal tax bracket and the $100,000 conversion amount pushes the investor into the 31.6% tax bracket. The total tax due on the converted amount is $29,822, which is the amount that would be invested in the tax savings account if the conversion is not done.
Source: T. Rowe Price Associates, Inc. |
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