February 13, 2012
Roth may become more compelling planning option
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If the current proposal before congress to eliminate the stretch IRA provisions from the tax code go into effect, it presents an even more compelling reason to convert traditional IRA’s into Roth IRA’s. While most people are reluctant to pay taxes now on a tax deferred account, the ability to pay taxes now under current rates, rather than under future rates which are likely to be higher. Now with the potential loss of the ability of beneficiaries to stretch withdrawals when they inherit, thereby paying the taxes on the account within 5 years of their inheritance, the case for the Roth becomes more compelling.
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Their growth and distributions would be tax free – unless, of course, congress eliminated the tax free character of the Roth IRA. But they would never break a promise like that (unless, of course, you count their original promise not to tax social security benefits).
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Wow, even more cynical people.
Converting to Roth now ENSURES that a tax is to be paid. Waiting MAY cause a higher tax to be paid.
What’s the time value of money in a zero interest rate environment?
That argues BOTH ways.
* Since money today has ZERO value, why not pay the tax (i.e., there is no better use of the funds; the NPV of the tax loss in the future is huge; confiscation of IRA / 401Ks for the “enhanced socsec benefit)?
* Since money today has zero value, why not try to convert it into something that will become valuable (i.e., real estate; gold; dividend paying growth stock)?
Pretty good argue with myself and lose twice.
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