Is there any reason I shouldn't convert my traditional IRA to a Roth?

[upper2bits]

We're over the income limits so we can contribute directly to a Roth but I was doing some reading and it appears I can convert all of it over now and since Roth distributions are tax free on gains and principle it seems like a no brainer. Am I doing this math right?

$70k in account.

Convert I pay taxes, so ~$20k in taxes now but then that money grows tax free so assuming 7% that's $532k saving me ~$60k in taxes. If I leave it in the traditional and it grows to $532k I'll then have to pay (assuming a low 15% bracket) ~$80k in taxes.

Is this right, should I convert it now and take the one time tax hit?

[Cromacster]

Why would you want to pay taxes now?

I would just leave it.  You are not coming out ahead by paying the taxes now.

I would read up on the Roth pipeline and other withdrawal strategies for FIRE.  While isn't going to fit everyone's FIRE plans, it's a good place to start.

http://www.madfientist.com/retire-even-earlier/

http://www.gocurrycracker.com/never-pay-taxes-again/

http://www.madfientist.com/traditional-ira-vs-roth-ira/

[Cromacster]

Convert I pay taxes, so ~$20k in taxes now but then that money grows tax free so assuming 7% that's $532k saving me ~$60k in taxes. If I leave it in the traditional and it grows to $532k I'll then have to pay (assuming a low 15% bracket) ~$80k in taxes.

I'll also add that this is a miscalculation.  You wouldn't be withdrawing the entire 532k in one go.  You would be withdrawing the amount you need per year or so.  With deductions and what not you are never going to be paying tax on the full amount withdrawn.  In the current tax system you can withdraw around 20K per year without paying any taxes (MFJ).

[Druid]

If you are passionate about the benefits of the Roth I would leave the money in the traditional until the next recession. When the value of the markets tank I would then do the conversion. You will pay less taxes because the value of the stock at conversion will be much lower. There is a risk that your traditional account in the meantime will dramatically increase making the future taxes on conversion greater; but common wisdom is that the 20k you didn't pay in taxes today, that compounded, will make up for it.

Many people forget that you pay zero taxes on withdraws from your traditional accounts up to your standard or itemized deductions and exemptions. This makes the traditional Ira a very tax efficient vehicle that should be in everyone's portfolio. In a perfect world, even a Roth enthusiast, would have enough money in a traditional account to match their lifetime stand/itemized deductions and exemptions. I would think that 70k is far from enough to meet this minimum criteria.

[seattlecyclone]

You are not doing the math right. If you assume your tax bracket will be the same now and in the future (and you can't afford to max out your retirement accounts), Roth is exactly equivalent to traditional.

S = amount saved
G = investment growth factor
T = marginal tax rate

With a traditional account, you invest the whole amount S pre-tax, and it grows by a factor of G, so you retire with S * G in the account. Then when you withdraw, you pay tax, so you are left with (1 - T) * (S * G).

With a Roth account, you invest after paying tax, so you only start with (1 - T) * S in the account. Then it grows by a factor of G to (1 - T) * S * G by the time you retire. You don't pay tax on withdrawal, so that's the amount you get to keep — exactly the same as the traditional account!

The number of dollars of tax you pay is higher with the traditional account, because your investment has grown over the years. This doesn't matter! All that matters is how much you get to keep. Assuming you will invest the same way in either account, the tax rate T makes all the difference here. The lower T is at the time you choose to pay tax, the more of the money you get to keep. Therefore you should generally favor paying tax at a time when your rate is lowest. If that time is now, go ahead and make Roth contributions. You should even convert from traditional to Roth if you're pretty sure your tax rate is lower right now than it's ever going to be again. However you seem to indicate that you expect your tax rate to go down in retirement, so you should keep your pre-tax dollars right where they are.