While it is indeed preferable to pay the conversion-caused tax from cash on hand, one should not avoid a favorable conversion scenario (e.g., paying 12% now when expecting to incur 22% or higher in the future) even if the tax must be paid from the converted funds.there are 2 principles which i view as fundamental when considering a roth conversion:
(1) pay the tax from a taxable account that is earning bond-like returns. do not sacrifice the tax deferral of a traditional ira to pay the conversion tax. if you do not have cash to pay the tax, do not perform the conversion. this principle ensures that the opportunity cost of the conversion is small.
Yes, this is consistent with Tax-efficient fund placement.(2) view the roth ira as a tool to obtain truly long term capital appreciation. this means that the roth should be fully invested in equities for a decade or more, and should be touched as a last resort.
Statistics: Posted by FiveK — Tue Oct 15, 2024 1:00 am