Ask Terry Questions Roth Conversion

Roth Conversion

By Terry Savage on January 09, 2015 | Financial Planning / Retirement

Hi Terry, I am seeking more tax diversification for my retirement account and want to gain more Roth exposure. Is there any advantage or disadvantage of converting existing traditional IRA to Roth vs allocating a larger portion of new 401K contributions toward Roth 401K in order to increase the post-tax portion of my retirement portfolio? Thanks.

Terry Says:  Well if you do a conversion of your current IRA, you’ll have to pay the taxes NOW — preferably with money held outside the IRA (or else you need to take more out to pay the taxes, and that’s really non-productive).  I think it would be better to get the benefits of contributing to a Roth 40l(K) — especially if your employer matches part or all of your contribution.  But you’re wise to seek tax diversification.  And if you’re approaching retirement age (and the age for MRDs), you might want to just save/invest in an after-tax account in addition to your company plan — even though there are no MRDs for a Roth. It’s just that paying the taxes at conversion is such a huge cost!

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