Should a 60 yr-old guy convert a traditional IRA to Roth IRA?

snipped-for-privacy@dr.com (Mel) posted:

Conversion is going to be a taxable event. That means you'll pay taxes on the amount converted annually at your then current marginal rate. Doing it before starting SS may spare you some taxes (on the SS income) -- though with the probable additional income thrown off by that amount of mutual fund dividends and CGD, that's doubtful. The advantage would come in the future:

First, everything moved into a Roth would continue to compound, without future tax liability (unless, of course, Congress changes the law ). Second, you will not have to take Required Minimum Distributions beginning at age 70 1/2 from a Roth. Third, since withdrawals from a Roth are non-taxable, they won't add income which might expose more of your Social Security to taxes. Bill

First off, last time a client asked this question (and he was in similar situation to you, btw, army retired instead), I set up a spreadsheet and plugged in the numbers, assuming a certain rate of return on the IRA's. Didn't take too long, and charged him about 95$ for my time as I remember. One important factor to consider is your time horizon, i.e. how long to you expect to live and work and draw distributions on traditional IRA's? In essence, there is no easy answer. But the general principle is to delay taxes as long as possible. ChEAr$, Harlan Lunsford, EA n LA

Harlan, you hit the nail on the head. Your spreadsheet sounds marvelous. I'll work part-time (15,000 yearly) for 5 more years, and plan on drawing from IRAs/401k for 30 more years. In five years I'll need about 30,000 yearly as supplemental income drawn from the IRAs/401k and the rest of it. When you say, "the general principle is to delay taxes as long as possible," what does that mean to the current mix? (800,000 in mutual funds of which 160,000 is in a traditional IRA, 33,000 in 401k) One of my main concerns is how to handle the 600,000 in plain ol' mutual funds. Should I move that money to laddered CDs, tax exempt funds, zero coupon bonds, etc., etc,...., or just leave it, pay tax on the dividends/capgains, and draw from those funds as necessary? Thanks,

Mel

I pretty much think you don't expect me to analyze everything and then say 1. do this, 2. do that... 3.. divorce your wife.... 4... do nothing..... Here are some thoughts however. Since you're still working and plan to for a while, by all means fund a ROTH IRA to the hilt - 5,000 for yourself and if married and spouse qualifies for spousal IRA, assuming she's not a young thang,

5000 a year for her. Postpone and resist the temptation to draw social security. (general principle; your mileage and taxability may vary) Work longer than 5 years if you can, cause it keeps the mind and body young. Take a multi vitamin and an extra vitamin e every day also.. (grin) Don't move mutual fund money unless you find a place where you can make more on it. I'd rather have taxable dividends instead of munis IF after paying the tax I have more left over than a city bond would pay. Find a good local Enrolled Agent (EA) or CPA to help you figure out how to smooth out your income. Oh, a wee dram of Scotch every afternoon helps, too.

ChEAr$, Harlan Lunsford, EA n LA