I have a rollover IRA, which was my 401K from my previous employee. It is not a small amount of money. My financial advisor suggested me to transfer it to Roth IRA and pay the tax now instead of pay the tax when withdraw at retirement. He said the tax bucket expected to be increased at retirement. What tax code should I pay to transfer from Rollover IRA to Roth IRA? Is it my regular tax bucket or 15% capital grain? Please give me some advice. Thanks a lot!
Rollover IRA vs. Roth IRA?
19
Apr
Insure411
April 19, 2010 at 5:27 am
You will be paying income tax – so it is dependent on what income tax bracket you are in. If you are retired, then it could be less, but if you roll it all over at once (not a small amount of money) then you may find yourself in the higher brackets.
You could always consider transferring into a Roth a piece at a time. This may save you income taxes. Taxes may be higher when you retire based on the current administration.
Andy
April 19, 2010 at 6:16 am
Transferring now from a Traditional (I think this is what you mean by rollover) IRA to a Roth IRA is a good idea, because the value of your account is probably as low as it has been in a while. However, as in the previous answer, all taxes will be due on that account at one time (I’m pretty sure it’s at your normal tax bracket). Sending it over piece by piece is a good idea if you can’t pay the tax bill right now.
The idea behind a Roth vs. a Traditional IRA is this…hopefully you’re at a lower tax bracket now than you will be at retirement. When you’re retired and withdrawing from your IRA you should be living the good life…the better life you’re living means the more taxes you’re paying (in a Traditional IRA). If you have a long ways to go until retirement, switching makes sense. If you’re already near retirement age, the cost of the taxes may offset the benefits.