Pls dbl-check thots about Trad v. Roth IRA

wrote

You do not have to wait to convert, assuming you meet other requirements.

There is also a "social security tax trap" that one should consider when deciding whether to convert. This "trap" argues for converting to a Roth.

It does indeed often pay even for retirees to convert their Traditional to a Roth.

Yes, but it takes "a lot" to be ineligible. See

, for one, among many other sites. Note especially the changes for tax year 2010 (knock on wood). snip

Correct.

Correct. The guideline is to convert only enough to keep you from landing in the next higher tax bracket. OTOH, if the conversion puts you a little over, the extra tax you pay on the amount you go over is often trivial enough that it doesn't warrant doing what the IRS calls a "partial recharacterization." The latter lets you take a part of what you converted to the Roth and put it back into the Traditional.

True, AFAIC.

Thanks. I have now had a chance to do my homework, and I have confirmed all that you have reiterated. I appreciate your timely feedback.

Thanks for the pointer. Fairmark is always a fountain of good insight. I had no idea such changes were in the offing. How do CFPs keep on top of all this? How can us mere mortals keep on top of all this, other than by periodically rereading the Fairmark site (et al)?

I presume you are referring to the comments in the Fairmark article "Tax on Social Security -- Another advantage over the traditional IRA". If you have something else in mind, I'd appreciate it you would elaborate.

Thanks again for all your feedback.

How about the MIFP FAQ:

See fourth link under "Contributions" section at top...

-Tad

wrote

Really, especially given that some 80% of the age-eligible population have no college degree, are working like dogs just to keep themselves fed and so, even if they had a great high school education, often have no time to put into planning for the future, and so are really hamstrung. I figure it's chatter at sites like this, on radio talk shows, by diverse figures such as Suze Orman, Robert Shiller, Alan Greenspan, and many others talking in the media about investing, along with seemingly new emphasis at many high schools on financial planning, that represent our best hope.

In my opinion CFPs are paid to stay on top of this. Not that they all do--only recently has a college degree even been required for them, for one.

Yes,

makes the point I was trying to introduce. See also , especially the link on the second page to some other articles on this, which shows how dramatic the effect of this tax trap can be.

My thanks to Elle, who helped comment on my writing for the above article. She saw the pre-published copy linked correctly, intended as a September feature story on my site. I'll leave the link working as the OP's question was timed perfectly, Elle and I had just finished our email exchange. The graph I offer, shows that for a single 65 yr old receiving $15K in Social Security, that as she approaches $33K of other income (such as IRA or 401(k) withdrawals, her marginal federal rate will hit 46.25%. That phantom rate only lasts for 1/3 the value of Social Security income (i.e. in this example $5K is taxed at this rate). One would think that with proper planning, it should be possible to avoid this rate by either (a) keeping withdrawal low enough each year or (b) once past that phantom rate, 'top off' the current bracket with Roth conversions and perhaps avoid the bubble in future years.

JOE

Joe, your article references a single person. I'm too lazy to go look at when the tax rates changes for married filing jointly. Can you share some facts/insight?

Elizabeth Richardson

I'm happy to work on that. One of my comments to Elle was that I offered an example that I ran across. My intent was to produce a next page with a chart showing a couple. I need to choose two details: ages (under/over

65, as the std deduction is increased for age 65) and combined level of SS income. Those are the variable I need to fix to produce the data, and chart. I'd take your input on this.

Thanks, JOE

Well, no matter which other income vs SS income numbers you choose, it will be the rare household that matches even close, much less exactly. Since you'd be looking at married filing jointly, it wouldn't much matter who was older or by how much. However, at some point the SS income changes from one benefit to two benefits, which seems to me would complicate computations, or I would expect it to complicate on which income sources to rely. Generalizations like you did for the single woman, which demonstrates what happens when you exceed a certain income from taxable sources would be excellent and much appreciated.

Elizabeth Richardson