Traditional IRAs vs. Roth IRAs

by Marc Courtenay, Retirement Panel Chairman

I'm writing you this report to discuss my recent conversion.

No, I didn't have a religious experience. Rather, I just converted almost half of my traditional IRA (Individual Retirement Account) into a Roth IRA.

Why'd I do it? It all boils down to controlling (and trying to limit) my taxes.

The Taxman Cometh

No matter when I withdraw funds from my traditional IRA, I will be taxed at the ordinary income rate.

Right now, I have a pretty good idea of what my taxable income will be this year. I also know what the prevailing federal and state income tax rates are. Thus, I can easily calculate how much taxes I'll have to pay.

In the future, I can't be so sure.

Not only is the amount of my taxable income unknown, but so are the tax rates. And given that government debt is already well above one trillion dollars (and regrettably growing a few billion more every day), I think we can all agree that tax reform and tax increases lie ahead.

On top of that, if the investments within my account perform as well as I have planned, my account balance (i.e. – the amount I will be taxed on) will be much greater.

So to put it simply, the decision to convert came down to paying a smaller and quantifiable amount of taxes now… or waiting and paying presumably higher taxes down the road.

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