There are several factors in this choice, only a few were discussed in other answers.The primary factor, of course, is your outlook for tax rates - today vs when you retire. But there are many other aspects to this question.Ultimately, the answer to this question is based on doing overall retirement planning, and retirement income (not investment) allocation.Part of this answer will be based on what other sources of income you will have (projected to have) in retirement. Will it just be this IRA and Social Security? Or do you have a pension? Do you own a house that you can take a reverse mortgage on?While no one can predict future tax rates, one thing you can control is the type of retirement income you have. In my personal opinion - and what I advise clients - is to have maximum flexibility in retirement plans.What do I mean?Withdrawals from regular IRAs count as taxable income, taxed at the same rate as earned income rather than interest and dividends.More importantly, traditional IRAs (and traditional 401ks) have required minimum distributions in retirement which means whether or not you need the money, you have to take some money out.So what…you say.Taking RMDs have unintended consequences such as pushing up your tax bracket or even making your Social Security benefits taxable - or taxable to a greater extent. So $1 over a certain threshold can cost you quite a bit of money in extra taxes.Also, Medicare premiums are also based on a modified adjusted gross income, and if your MAGI is higher, you pay more in premiums - another cost.Roth IRAs do not have required minimum distributions, and as long as you’ve held the account for more than 5 years and are over 59 1/2, the withdrawals are tax free. This also means that those unintended consequences with traditional IRAs aren’t there with Roth IRAs.Please note - and people get confused about this all of the time - Roth 401ks DO require RMDs when you retire from your employer with that plan. Yet because it’s a Roth account, distributions are not taxable just like Roth IRAs.So aside from the tax rate issue, the simple fact that Roth IRAs do not have RMDs may be a reason to convert. Again, this is also dependent on other retirement income sources.Thus, when you get to retirement age, you can pick and choose from what accounts you take withdrawals, to coordinate with Social Security and any work wages, to minimize taxes while getting the money you need. And in turn, that will help your overall portfolio last longer.Let’s examine one of the most common assumptions in retirement planning - that you’ll be in a lower tax bracket in retirement.Says who? How do people know this?In fact, research and surveys indicate that when people first retire, they are spending as much, if not more - and require just as much income - as before they retire to travel and do whatever to enjoy their time. Now, if you’re pulling out income equal to when you were working, exactly what makes people think that their taxes will go down?For many families (you don’t indicate your personal situation), taxes will go up.Will you make more money later in your career than you do today?Your children will grow up and leave home.Your mortgage will be paid down or paid off.So, these 3 things combined - higher income, fewer deductions and exemptions means only 1 thing - your taxable income is higher and potentially in a higher tax bracket! It’s definitely not going to be lower!There’s a lot more to retirement planning, but these are just some of the issues.By the way, having $300k in an IRA is very impressive, and certainly higher than the average American. However, I would counter that it is a substantial amount…for you.If your income is $200k and your current IRA balance is $300k, that means you’ve saved 1.5 to 3 years․ worth of income in your IRA, and it’s not a lot on that basis when people have to make their money last 20 - 30 years in retirement.I don’t have $300k in my IRA, so I know I’m way behind on saving. So I’m not saying this to bring you down. In fact, I’m rather envious.A better way to look at your IRA/401k balance is the amount of income it can generate. Using the 4% rule as an estimate - and only an estimate, $300k throws of $12k/yr. At that level, either you’re going to need a lot more sources of income, a much higher balance, or you’re going to be taking a huge hit in your retirement lifestyle.As for the conversion itself, remember that it isn’t an all or nothing choice. You don’t have to convert your entire IRA. In fact, you can convert a portion (dollar amount, not specific investments).So a strategy could be that you convert an amount that brings your taxable income up to, but not over, the tax bracket threshold so it doesn’t cause you to incur a higher rate.The nice part is that if the converted Roth IRA loses value, you can always recharacterize back to a traditional IRA. And then convert again in the following tax year, or 30 days, whichever is later. It’s one of the few do-overs allowed in the tax code. WORK WITH A QUALIFIED TAX EXPERT ON THIS!And lastly, if you have savings outside the IRA to pay the taxes due on any conversion, the long term benefit of converting will be much greater. If you have to withdraw IRA money to pay the taxes, the financial benefit isn’t as great.My suggestion to you is to work with a financial professional to do retirement planning and start on a retirement income allocation plan. Keep in mind that IRAs and 401ks arent’t the only ways to save fore retirement.Hope this helps.
