To Roth or not to Roth, that is the question
 

No, this isn't a thread about the Van Halen.

Its seems the more I read about converting to a Roth IRA, the less I know. Does it really depend on ones circumstances?

It seems like some of the questions involved require you to make predictions about the future.

Explain it to me using small words and short sentences so my neanderthal brain can follow.

I may be alone in this, but I believe that by the time I am drawing from my IRA the tax structure will not be as it is today. I believe we'll have moved to a 'usage' tax structure more so than the 'income' structure that we have today. If that happens, the Roth will be taxed twice.

So for me, and if the choice is between a traditional IRA and a Roth, I choose traditional.

Having said that, I really have no idea...

I have a traditional IRA but am converting part of it to a Roth every year with the intention of having about 50% traditional and 50% Roth. There are tax advantages to a Roth when you retire and start drawing SS, there are no minimum distributions, and you shrink your taxable estate.

However, as 71T pointed out, no one knows what the future holds and congress can change the rules at any time and they have done so in the past. Having funds in both is hopefully a hedge against rule changes.

There is a lot of information available on line about the pros/cons of Roth vs. traditional IRA's. Which is best depends on your individual circumstances.

Is there really any threat of them changing the laws to tax income from a Roth IRA? I can see how people could be convinced to tolerate high taxes, but being taxed twice would literally have people up in arms, I think.

If I understand what was being said, I think he was talking about a radical change, like doing away with income tax and making a federal sales tax. If that happened, they could say "yes, you can withdraw all of your IRA and we won't tax it." But then when you go to the store to spend the money, they won't know or care where it came from, and they WILL tax it. At that point, depending upon which IRA it was, it would either be taxed once or twice.

But, maybe I didn't get what he was saying.

yes, it does depend on your circumstances AND on your expected future circumstances

you can find some conversion calculators at Fidelity and/or Vanguard or elsewhere

you could also just split the difference and have some of each

IIRC, this is a special one year only "sale" (subsidy) for certain income groups

I could never figure out a sure course on this a few years ago, so I just converted it all to Roth.

I was telling my wife the other day I could kick myself from not going through with changing my traditional IRA over to a ROTH around two years ago when the market was at it's low. At the time I told her that was what I should do. But that's water under the bridge now. When I get to the point of having to draw from my IRA, I'm thinking of just putting it into a ROTH (I'm assuming since I already paid tax) or into my wife's ROTH 403B.

correct:

"Congress has eliminated the income limit on Roth IRA conversions. Highly-compensated taxpayers may now convert Traditional IRA accounts to Roth IRAs regardless of income. Special tax treatment for 2010 Roth IRA conversions allows taxpayers to spread the taxes due on the conversion out over two years making the tax burden much easier to handle by requiring only one-half of the taxes to be paid during 2011 and the other half of the Roth conversion taxes to be paid in 2012."

I decided converting does not make sense for me. Question though - is there not still a contribution limit on Roths - meaning some people who convert may not be able to further contribute to the Roth?

IIRC with a traditional IRA you lose the tax deduction at an income threshold but you can still contribute regardless.

I am no expert by any stretch though...plain English 'splaining is always appreciated.

What Congress gives, congress can take away.

I expect that it is possible that ROTH may get means tested for taxation.

That said, I think it is more likely that we convert to a consumption based taxation system. If either of these happen, then the taxes paid on a Roth are lost.

but there is the "Indian Giver" effect - once a subsidy or benefit is in place it is very unpopular to take it back

Yeah, that was pretty much what I was saying.

It may not be as radical as getting rid of the income tax completely, but at least the addition of a VAT.

I believe (that the government believes) there has to be a way to tax 'un-earned' and 'un-claimed' income. VAT does that by taxing most everything.

Is there a threat to tax Roth IRAs? Absolutely. They have been means testing and taxing social security benefits since the early 1980's... and they didn't index the means testing amounts.

Doesn't make sense to convey for me. They will tax it as ordinary income and take a marginal 35% out of me, granted Over two years. I hope to have 1/2 or less taxable income in ten years when I"retire" .