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Should I convert traditional IRA to Roth?

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  • Should I convert traditional IRA to Roth?

    This year I predict I will be in the 35% tax bracket. I am currently 38 years old. This is my best year yet and predict I will be in this bracket for the foreseeable future. My wife has $35k in a traditional IRA that I would like to convert to Roth so we can start doing back door Roth conversions every year. She does have a W2 job making about $15k a year. I know now that I should have done this during low income years. From my research on here, I should probably wait until I have an low earnings year (don’t see that happening anytime soon) or do when we retire and have a low income year. Does it make sense to wait or should I just do it now, pay the taxes, and then have the ability to do yearly Roth conversions in my wife’s account? If it matters, I just opened up a solo 401k and can do Roth contributions for employee portion every year. I was thinking of doing wife’s conversion this year and then using solo 401k for Roth contributions for future years to get money in Roth every year. Of course all this may change with pending law changes in Congress. What do you think? Thanks for your help!

  • #2
    Does your wife’s employer let her participate in a retirement plan with that salary? Best for you to roll her Ira money into that. 35% is quite high and I wouldn’t convert anything to roth

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    • #3
      It will cost you $12,500 ($35k x .35) to contribute $12k per yr ($6k each) to get tax free growth. Assuming 7-10 years to double your investment, completely ignoring each additional year and discounting the PV. The ability to contribute for both changes the math. This could break even in 5 years and keep on giving. At 38, 20 years of Bd Roth for 2 whether she works or not is a lot to pass up.
      The solo 401k Roth option is independent from her bd Roth and you will still pay the 35%.
      Your problem is maximizing the Roth. At your level, I would consider freeing up the BD Roth for $12.5 tax. Fully fund both as long as you can. It’s not going to move the needle.

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