A 63-year-old retired certified public accountant with $1.2 million in a 401(k) is questioning whether a Roth conversion makes financial sense given expectations about future tax rates.
The retiree's primary concern centers on tax implications. "I don't expect my marginal tax rate to be materially different in the future," the person said.
Roth conversions allow account holders to move money from traditional retirement accounts to Roth accounts, paying taxes on the converted amount upfront in exchange for tax-free withdrawals later. The strategy is typically most advantageous when a person expects to be in a higher tax bracket in retirement or when current tax rates are historically low.
For those who anticipate stable or similar tax rates throughout retirement, the financial benefit of a conversion can be limited, potentially making the strategy less compelling.
