401K Question...

[ChiefsfaninPA]

Originally Posted by alnorth

ok, we've got a disconnect here. If you have an IRA and you make a Roth conversion, you pay tax at ordinary income rates during the year of the conversion.

If you pay no taxes or are in a low 10% or 15% bracket, this would make sense untill you run into the higher marginal brackets, or if you are retired and have only passive income this would be brilliant strategy for SOME of the money each year, but not all of it in one year.

My point is if you are in the highest of high income tax brackets now, and you have a huge IRA, why would you ever convert it? Your better off letting your kids inherit at a tax rate thats likely lower. If your Bill Gates and your children grandchildren and great-grandchildren will always be wealthy, then sure what the heck since the tax will never go away, but thats not most people.

True, but in 2010 the tax rate on a conversion is 0%. That is the same year there is not death tax. Congress is sneaky and snuck this provision into the extension of the Tax Act. So if you have a traditional and want to convert it for the whole year the conversion rate is 0%. But only for that year.