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Posted by joetaxpayer on February 9, 2007, 9:15 am
omehegan@gmail.com wrote:
snip
> Hmm, I didn't know you could convert them [401(k) or IRAs to Roth IRA], and
wouldn't have thought
> it would be a good idea even if you could. Maybe I should consider
> this...
>
> I'm 26, and have a rollover IRA with money from a previous employer.
> My current employer offers 401k but no matching. I'm about to open a
> Roth IRA and begin contributing the maximum per year to that. Once
> that's done, if I have anything left over, I'll put it in my company
> 401k. When I leave the company, I'll roll that into my existing
> rollover IRA. Repeat for each successive company, unless they match,
> in which case... you get the idea.
>
> I guess the whole point of my focus on Roth IRA is the fact that I
> know I'll be in a higher tax bracket when I retire, so it makes sense
> to pay tax on the savings now at a lower rate, rather than defer it
> and pay later at a higher one. So, by that logic, if I can convert my
> rollover IRA to a Roth and pay tax on it now at that same rate, I
> should. Interesting.
Two points, when you leave a company (you imply you have frequent job
changes) it's probably good to move the money to your IRA, don't want a
half dozen 401(k)s left behind.
Why are you so sure you will be in a higher bracket at retirement?
Either way, being aware of your current bracket (certainly a known
figure, or knowable) and an idea of how your aiming toward retirement
can help guide your decisions. People with variable incomes have a great
opportunity to manipulate this way, converting at 15% in bad years,
building a retirement fund that may avoid taxes completely.
JOE
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