converting part/all of Traditional IRA to Roth IRA

[cabronjames]

do of any of you that already max out the tax-advantaged accounts, & max the I-Bond limits, find it useful to convert part/all of your Traditional IRA to a Roth IRA?  Is this potentially (depending on the taxable/AGI income in a given year) a useful way of extending the benefit of tax-advantaged accounts?  Is it superior than investing the tax money needed to do said conversion in taxable accounts?

[hoost]

cabronjames,

I'm not sure if I fully understand what you're asking.  Which tax-advantaged accounts are you referring to?  I would consider IRA's to be tax-advantaged accounts.  I would personally get whatever employer match you can get for a 401k, then max out IRA's before maxing out 401k.  If you're not allowed to contribute the maximum amount to a roth IRA due to income restrictions, you can contribute the balance post tax to a traditional and roll into a roth the next day.

I hope that helps.

[cabronjames]

my question if 1
-has existing a Traditional IRA (say from rolling over an old job 401K)
-are already maxing out their Roth IRA, 401K, & I Bonds space each year
-they still have an extra X of income that year they wish to invest

are they better putting this additional X income
1 in a temp cash fund to pay tax associated with coverting part/all of the existing Trad IRA into a Roth IRA
vs
2 just investing it in taxable in gold or stock (the most taxable friendly PP assets)

the idea is given that acceptable elder age for withdrawal, Roth withdrawals are tax free, vs Trad withdrawals that are taxable.

[MediumTex]

I would definitely use some of the extra cash to do a Traditional to Roth IRA conversion.

I might use some of the extra cash to beef up my taxable accounts as well.

[hoost]

I understand your question now. Thinking through it, I would say the "right" answer probably depends on your age, current tax bracket, expected retirement age, expected tax bracket in retirement, etc, etc.

That being said, I'm 26 and in the situation you described and decided to do the rollover.  I don't have any logical reason for it other than it just felt right.  If anyone can reason that out better or do some sort of calculation, that would be great.

[ngcpa]

Back around 1998 there was a tax law that allowed one to convert from a traditional IRA to a Roth and pay the tax over the next 4 years.  I had about $ 120K in a traditional IRA that was a rollover from a teaching job I had quit that had a great retirement plan I participated in.  Each of the next 4 years I took an additional tax hit on about $ 30K of taxable income.  I alleviated a most of this hit each year by maxing out my KEOGH retirement plan from my self employment income (true I was not getting a tax break on the new income, but in effect I was putting a large amount almost tax free in my roth IRA each year for 4 years).  The very first year I was very lucky and the $ 120K grew to over 200K.  I was also putting as much as I could in my Roth each year (In the years leading up to my retirement in 2008 this was $ 6K/year).  This worked out so well, that after the 4 years, I closed out my Keogh in which I was still contributing and opened up a new retirement plan of a slightly different type.  I then rolled my Keogh $ into a traditional IRA and started yearly rolling over $ from here into my Roth continuing the process.  Even in retirement I continued rolling over the $.  I now have a large tax-free pension and don't have to deal with minimum distributions.  I also
paid 0 tax last year, although I had more income than I ever had before.  I do get social security, but don't have enough taxable income to make any of it taxable.  My MBA & CPA paid off much better by knowing the tax laws and the ways around them then by actually earning money from them.  Bottom line I think converting traditional IRA $ to Roth $ is a great idea.  This is especially true if you are young.
Norm