To Roth or Not to Roth – Should You Do a Conversion?

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Jim Lorenzen, CFP®, AIF®

Steven Elwell,  a CFP® practitioner in Amherst, NY recently wrote a nice piece for NerdWallet on this subject.

In his piece, he mentions five situations that might suggest a conversion would be a good move:

  1. You are in a low tax bracket
  2. You don’t need the money and plan to leave it to your kids
  3. When your investments are down (did you do it in 2008?)
  4. When you believe tax rates will go up
  5. You want to reduce the value of your estate for income tax purposes.

If you’d like to read Steve’s article, you can access it here.

The points worth noting in particular – my own opinion – are #1 and #4.

Tax brackets are historically low.   There was once a time when the highest marginal bracket was 90% before the early 60’s, when President  Kennedy began to initiate cuts.  As you can see from the chart below, the general trend has been down for some time, although it’s also worth noting a lot of deductions have disappeared along the way.

While top marginal tax rates have declined, it’s also true that the Government is still spending your money – usually favoring whatever groups will help them get re-elected  – I know, I’m a cynic.  Nevertheless, as I take great pains to avoid any mention of Greece, the government keeps spending.  While those in office take pains to point out the annual deficits have been in decline, the fact is those deficits still add to the existing debt.
There is a difference between the reported national debt and the REAL debt.  The reported national debt is now over $18 trillion; but the real debt is very different.


The government engages in different accounting than the rest of us.   If you purchase a car with nothing down, for example, you would have to list the entire outstanding balance as debt on your balance sheet.  Not so with the government; only the current year’s payments are counted as debt.  Result:  While the government reports $18 trillion, Townhall.com estimated the debt at $87 trillion – and that was in 2012!

Not long ago I did a webinar entitled How To Plan for an Income Tax-Free Retirement.  A number of those who attended, and a few who couldn’t make it, have asked me if I had a written report they could download.   I’ve created an updated version outliining this strategy, which is really most worthwhile for those who are successful and most likely between ages 35-55.  Those between 55 and 60 may still benefit.   You can learn more here.

Enjoy!
Jim

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Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Jim's picture
Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.

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