Author Topic: Convert from Roth IRA to Traditional?  (Read 3007 times)

wkumtrider

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Convert from Roth IRA to Traditional?
« on: December 22, 2015, 09:59:35 AM »
My DW and I currently have a Roth IRA (have had for quite some time).  I have read the IRA ladder conversion on the Mad Fienstist's website about converting your Traditional to Roth to avoid penalties.  Would it be better if we converted our Roths to Traditional and use the ladder conversion in early retirement?  We do plan to retire before we are 59.5 and use the IRAs.

Thanks for the advice
« Last Edit: December 22, 2015, 10:23:54 AM by wkumtrider »

matchewed

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Re: Convert from Roth IRA to Traditional?
« Reply #1 on: December 22, 2015, 10:03:58 AM »
IMO leave your Roth's where they are. Contribute to traditional IRA going forward. You can use the contributions from the Roth to shore up the 5 year interval for the pipeline.

dandarc

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Re: Convert from Roth IRA to Traditional?
« Reply #2 on: December 22, 2015, 10:06:20 AM »
Strictly speaking, you cannot convert a Roth IRA to Traditional.  You could re-characterize your contributions for this year from Roth to Traditional if you've already made them.

Roth vs. Traditional depends on your overall situation.  If you're already paying no federal income tax, Roth is a slam-dunk.  In general, the higher your marginal tax rate, the more you should lean traditional - you're saving more today, which makes it more likely you'll come out ahead when paying taxes down the road.  Take credits into account in figuring your marginal rate - for example - if your AGI is close to one of the cliff's for the saver's credit, your marginal rate might be much higher than you'd think at first.

geekette

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Re: Convert from Roth IRA to Traditional?
« Reply #3 on: December 22, 2015, 10:07:04 AM »
I'm confused. You've already paid taxes on the Roth.

You can withdraw your contributions (not earnings) without penalty or taxes after 5 years.

You can start a tIRA and do a conversion ladder from that.  I don't see how or why you'd convert a Roth to traditional.

johnny847

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Re: Convert from Roth IRA to Traditional?
« Reply #4 on: December 22, 2015, 10:08:59 AM »
There is absolutely ZERO reason to convert your Roth IRA to traditional. You have already paid the taxes to contribute to the Roth IRA so that you can avoid taxes on withdrawal. If you were to convert this to a traditional (I don't even know if that is possible) then you'd also pay taxes on withdrawal.
This is highly illogical. Why would you want to do this?

Now if you made a contribution to a Roth IRA this year, what you can do is recharacterize that Roth contribution as a traditional contribution. This will make it as if you made a traditional contribution in the first place.

Cromacster

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Re: Convert from Roth IRA to Traditional?
« Reply #5 on: December 22, 2015, 10:09:18 AM »
Short answer, no.  At this point if you've been contributing to a Roth for sometime, leave those contributions as is.  The contributions can be withdrawn at any point without penalty, but not any earnings.

To answer this completely a more detailed breakdown of your current savings etc would be required.  In general whether you are doing Roth or traditional depends on your current tax bracket and what you expect your taxes to be in retirement.  Without knowing any details, going forward, it might be worth considering contributing to a traditional IRA.

Also remember, for the Roth pipeline to work you need to cover 5 years of expenses before you can start to withdraw the converted money from your Roth.  Since Roth contributions can be withdrawn at anytime, they can be one source of money to cover the 5 year period.

Jack

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Re: Convert from Roth IRA to Traditional?
« Reply #6 on: December 22, 2015, 10:10:34 AM »
You've already paid the taxes on the Roth IRAs, and you can't go back and "un-pay" them (other than "recharacterization," which you can only do until that year's extended tax filing deadline). Therefore, there's no way to convert Roth to traditional.

You should switch to traditional IRAs for 2015 tax year and later, though. (If you've already contributed to a Roth IRA for 2015, you can recharacterize that.)

wkumtrider

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Re: Convert from Roth IRA to Traditional?
« Reply #7 on: December 22, 2015, 10:34:41 AM »
Thanks everyone for the replies.  I am a novice when it comes to investing, and have been reading a lot of the recommended sites listed in this forum.  I know I've already paid taxes on the Roth.   I will look into starting a traditional IRA in 2016 (for 2015 tax year).  Thanks again!

Eric

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Re: Convert from Roth IRA to Traditional?
« Reply #8 on: December 22, 2015, 03:58:03 PM »
Thanks everyone for the replies.  I am a novice when it comes to investing, and have been reading a lot of the recommended sites listed in this forum.  I know I've already paid taxes on the Roth.   I will look into starting a traditional IRA in 2016 (for 2015 tax year).  Thanks again!

There are income limits to be eligible to deduct the t-IRA amount from your taxes.  Make sure you're under the limits before deciding to switch.  But if you are, you most definitely should.

https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

dandarc

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Re: Convert from Roth IRA to Traditional?
« Reply #9 on: December 22, 2015, 04:18:31 PM »
Thanks everyone for the replies.  I am a novice when it comes to investing, and have been reading a lot of the recommended sites listed in this forum.  I know I've already paid taxes on the Roth.   I will look into starting a traditional IRA in 2016 (for 2015 tax year).  Thanks again!

There are income limits to be eligible to deduct the t-IRA amount from your taxes.  Make sure you're under the limits before deciding to switch.  But if you are, you most definitely should.

https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits
Unless, of course you're far enough under it that your marginal tax rate is 0.  Which, with the saver's credit isn't too hard to pull off - AGI of $37K and you're paying $0 taxes MFJ, even with no kids.  Add on a couple of retirement accounts, and the gross could be pretty high - $73K.  $109K if you both work for government and can max out a 403B and 457B each.  +HSA + Health insurance - possible to be at like $115K or more gross and not be paying any federal income taxes.