Hello,
Income is around $180K Gross.
inherited IRA $123K
Trad IRA $29K
old 401K $22K ($19K vested)
old 401K 2 $35K
Should I convert over to ROTH IRA or just roll everything over into my traditional IRA and call it a day?
A Roth IRA really only makes sense, IMNSHO, under two circumstances post-SECURE Act:
1. If you expect your tax rate in retirement to be higher than your current tax rate.
- A traditional IRA has the same tax-free buildup as a Roth but you have to pay taxes on the dollars when you pull them out. This can be shown to result in the same post-tax result as putting already-taxed dollars into a Roth (but pulling the money out tax-free in retirement) provided that the tax rates are the same. In your case, consider what you expect to need in retirement. If your expenses are going to be, say, $75k, then you are likely to have a significantly lower tax rate even if federal tax rates rise somewhat (as you're currently at a much higher income). If you expect to be pulling out closer to $150k, though, you might expect your tax rate to be similar or even higher.
2. If you want a way to pass extra $$$ to heirs without tax.
- You can pass along your Roth IRA to your heirs without any tax bill. In contrast, your traditional IRA is now not only taxed but the withdrawal rate is accelerated under the SECURE act so that all money must be withdrawn (and taxes paid upon it) within ten years. This ten-year schedule could well push the beneficiary into a much higher tax bracket and make the traditional IRA tax-inefficient.
- Note that an alternative strategy might be to buy something like Berkshire Hathaway stock (which does not pay dividends or capital gains) in a taxable brokerage account and the beneficiary will get a step-up in basis (no taxes due on the capital gains) and no taxes will be due at all unless your estate exceeds $5.5 million ($11 million if married).
NOTE: not a tax lawyer or accountant, nor do I play one on TV.