Conventional wisdom says that it’s best to wait until retirement to convert a traditional IRA into a Roth IRA, which allows money to grow tax free. The theory is based on the belief that most people will have lower incomes and be in lower (certainly not higher) tax brackets. And that much is usually true.
However the decision is not so simple. There are many potential benefits to conversion. Anyone can do it – there are no longer any income limitations, but choosing the right timing can be complex. Yes the marginal tax bracket the conversion income is likely to be subject to is a major factor in the decision, but the timing of the additional income generated by the conversion can create issues with other retirement programs, mainly Social Security and Medicare. Continue reading