I've mentioned one or two things already about converting a regular IRA to a Roth IRA, the main thing being that if you end up in a nursing home or Assisted Living Center, 92.5% of what you withdraw from a regular IRA to pay for this care immediately becomes a deductible medical expense, but there are other things to consider as well.
- As someone else pointed out, part of the withdrawal can be taxed at the next bracket's rate (like 28% instead of 25%), and that's before you might trigger the itemized deduction or exemption phaseout (raising the incremental rate even more), or triggering AMT (especially for MFJ, there are incomes where AMT incremental rate is higher than the regular income tax rate; especially with the AMT exemption phaseout).
- You could be doing yourself out of state tax benefits. For example, if the amount converted pushes your NJ taxable income about 0,000, then the ,000 (K MFJ) pension exemption is lost, adding from 0 to 00 to your state income tax. And if you increase your NJ state income to above 0K, then the property tax deduction on the state return gets capped at 00 (and zero at incomes > 0K). Finally, if Christie finds Homestead Rebate money this year, the IRA conversion could raise your income to a point where there ain't none anyway.
- And back at the Federal level, aren't Part B Medicare premiums income-based now?