Is Now the Time to Convert to Roth?

[faumike]

I currently have $120,000 in a Traditional IRA and I'm leaning towards converting it to a Roth before 2026 (when the current tax policy expires). Here's some additional information:

- Wife and I are in our mid-30s
- Combined taxable income is ~$130,000 (currently 22%)
- One child
- No debt (home is paid for as well)

I'm comfortable bumping up to the 24% tax bracket to get this done in a couple of years. I don't see how these brackets hold long term.

What does the forum think of this approach?

[terran]

Personally, I wouldn't Roth convert in this situation.

1) I plan to spend at least some of retirement abroad, so I won't have to worry about ACA subsidies. If you'll need to get ACA insurance in retirement you might consider: https://seattlecyclone.com/marginal-tax-rates-under-the-aca/ which could push you to Roth convert despite high marginal rates currently.
2) I plan to establish residency in a no tax state for at least some of my retirement, so my state tax bracket will go down. If your state tax bracket will stay the same or go up in retirement this may favor converting.
3) While tax rates are scheduled to go back up in 2026, you'll still be able to have something like $100k of income while staying in a lower bracket than you are now (15%). I don't think this will change drastically at these "lower" income levels. If you're expecting to spend more than that it retirement (probably the wrong forum for you) or you disagree and think brackets for "low" income people will go above 22% then that might favor converting.

Whatever you do, make sure you have at least something in traditional when you retire. You at least want to be able to fill whatever standard deduction and personal exemptions there are at that time.

[DadJokes]

Personally, I wouldn't convert to Roth unless I paid 12% or lower in taxes on it. Heck, we're in the 12% marginal bracket now, and I still put most of our money into pre-tax investment vehicles.

[ixtap]

It is going to be interesting to see the differences/ similarities between this and the identical question on bogleheads...

[faumike]

It is going to be interesting to see the differences/ similarities between this and the identical question on bogleheads...

Thanks for the valuable insight.

[FIPurpose]

This is highly situation dependent, but my guess is that you do not want to convert this. More than likely in retirement you'll be drawing way less money than 130k per year, you'll be able to comfortably convert it in the 10-15% tax bracket range then.

[MDM]

I don't see how these brackets hold long term.

What does the forum think of this approach?

Brackets are only part of the equation.  Need to project your income in retirement and how it will fit within those brackets (and everything else that contributes to marginal rates) to make a choice based on something other than pure guess.

If you put everything in Roth and have no "unavoidable" income in retirement then your marginal rate in retirement will be 0% and you will have put too much in Roth.