Exactly. Thank you for providing an actual mathematical example.Maybe we aren't connecting on the same wavelength, but it appears when you use the term "simplest approach" you seem to think there is some $$ advantage to the simplest approach, without declaring any difference in tax rates between the TIRA withdrawal (back-end) or the front-end (Roth conversion), so let's assume we are in that simple "flat-tax" world of 25%, where I think I can do the math in my head.It is true, but it is not a popular opinion for those that have paid thier tax on thier conversations.This is not true.
The simplest approach is to let the entire IRA balance ride tax differed until withdrawals. The return on the money that would have gone to the IRS prematurely not only offsets any future tax saving from a conversion but continues to grow tax differed until withdrawn.
You earn $10k and put it in your IRA. Now we have to use the same growth rate everywhere, to make it fair, so we will say your money will double in 5 years, no matter where you put it.
Your money doubles to $20k using the simple approach and you withdraw $20k, pay the taxes of $5k and are left with $15k.
I start out just the same with $10k in my TIRA, immediately converting it to $7500 into a Roth ($2500 to IRS), letting it double to $15k in 5 years and withdrawing it.
I think at the end of the 5 years my after-tax $15k from the Roth buys just as much bread as your after-tax $15k from your TIRA.
Statistics: Posted by Tom_T — Fri Jul 19, 2024 5:56 am — Replies 30 — Views 3186
