Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy Government PANICs! Sterling Collapses! - 19th Mar 20
Coronavirus Market Crisis - Nowhere to Hide! - 19th Mar 20
Coronavirus Most Likely GDP Economic Outcome for Q1 and Q2 2020 - 19th Mar 20
How COVID-19 Leads to 2008-Style Bank Crisis - 19th Mar 20
Coronavirus Impact on Global Economic GDP Numbers - 19th Mar 20
Bticoin Crash Big Channel Review - 19th Mar 20
Gold is Doing Its Job…Silver Will Come Back as a Safe-Haven Asset - 19th Mar 20
The Chartology of Coronavirus Deflationary Event - 18th Mar 20
Fed Slashes Rates to Zero and Introduces QE in Response to COVID-19. Will Gold Rally Now? - 18th Mar 20
Coronavirus - Nothing to Fear but Fear Itself - 18th Mar 20
The Stocks Bear Market Is Upon Us... Or Not - 18th Mar 20
US and UK Coronavirus Containment Incompetence Resulting Catastrophic Trend Trajectories - 17th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Why Switching to a Roth IRA May Be the Best Investment Decision You’ll Ever Make

Personal_Finance / Pensions & Retirement Aug 05, 2017 - 03:55 PM GMT

By: John_Mauldin

Personal_Finance

By Terry Coxon : Should you convert your traditional IRA or 401k to a Roth? Or are you better off sticking with what you already have?

Either way, you stay plugged into the same powerful, wealth-building advantage that makes an IRA such a good thing to have—continuous compounding of investment returns unhindered by the drag of taxes.


Inside an IRA, all your earnings, 100%, get reinvested every year, year after year, for a faster build-up of wealth.

It’s when you take money out that a Roth IRA treats you very differently than a traditional IRA.

Traditional IRA vs. Roth IRA

Except for any non-deductible contributions you might have made, withdrawals from a traditional IRA are taxable. So a large share of every withdrawal is lost to the tax collector.

Withdrawals from a Roth IRA, on the other hand, are tax-free, provided the plan is at least five years old and you wait until the year you reach age 59½.

Just pay attention to the calendar and every penny you get from a Roth is really yours.

Roth World is clearly a sweet place for your portfolio to live and grow. But getting it there can be expensive, which is why the Roth decision can be hard to make.

It’s a Big, Taxable Step… and Worth It

You are free to convert a traditional IRA to a Roth IRA at any time.

There are no age requirements (either for you or for the plan), and there are no income tests to meet. The conversion door is wide open. It’s a big financial step, though.

Those contributions you have deducted as well as accumulated investment returns would pop out as taxable income. This means converting any part of a traditional IRA to a Roth triggers an immediate tax bill.

Do it anyway. Unless you’re confident you are destined eventually for a much lower tax bracket, paying the tax bill for converting to a Roth now is almost certainly the right move… but only to the extent you are able to pay the bill out of assets you own directly.

Here’s the logic.

Let’s suppose, for the sake of simplicity, that you are in a 40% tax bracket (state and Federal) and that you always will be. Regardless of investment performance and regardless of how long you wait to make withdrawals, 40% of what comes out of your traditional IRA is already tagged as government property. What you get is the remaining 60%.

In other words, a traditional IRA is a partnership between you and the government. If, for example, there is $1 million in that IRA, your real share is $600,000. The government already owns the other $400,000.

When you convert to a Roth, you are buying out your partner. Then you own the whole thing.

To see what you gain by converting, look at the effect on your overall portfolio.

The conversion doesn’t change how much you really own, it just reorganizes things. It shrinks the pool of assets that are earning taxable income (you drew them down to pay the tax bill), and it expands the pool of IRA assets earning income that is tax-free and 100% yours.

The reorganization will cut your tax bill year after year.

The same financial reasoning applies to converting a traditional 401k to a Roth.

Another Reason to Love Roth

The taxes you save with an IRA depend on (1) the IRA’s size and (2) the IRA’s longevity. Roths stay fat longer. A traditional IRA must start paying you (and depleting itself) when you reach age 70½.

A Roth isn’t subject to any such rule. It can continue accumulating tax-free wealth for as long as you like. You’re not forced to tap into it before you want to.

And you shouldn’t want to until you really need to, when you’ve exhausted all your other liquid assets. Until then, it is better—your lifetime tax burden will be less—if you spend from assets that generate taxable income (the investments you own directly) instead of from the no-tax investments inside your IRA.

Your Estate-Planning IRA

Because your IRA should be the last thing to touch when you need cash, you’re not likely to spend it down to zero. Some investors never spend any of it.

Serious thinking about how to maximize the usefulness of your IRA leads to some surprising results. Because an efficient IRA strategy likely means not spending the whole thing, an IRA isn’t just a retirement vehicle.

It is also a tool for estate planning and for much more that you haven’t yet noticed.

Get My Report, Protect Your Estate Now: A Concise Guide to Family Wealth Protection

Learn how to protect yourself and your family from extreme market conditions, taxes, and lawsuits. Click here to learn more.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules