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    mhanabata's Avatar
    mhanabata Posts: 3, Reputation: 1
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    #1

    Sep 6, 2009, 12:54 PM
    Advisability of selling all securities in 401k and establishing IRA Roth account.
    My wife (67 y old) and I (70 y old) are retired .We have a substantial amount of money
    In a 401 k account(mostly stocks) .Would it benefit us to sell all securities in 401 k account,on which we will have to pay taxes ,and place the money in a new IRA ROTH account? The rationel is that undoubtfully taxes will go up, sooner rather than later.If so, it may benefit us to pay tax on sold securities now when taxes are lower.On the other hand selling our securities from 401 k would push us into the maximal income bracket. Considering the above does it make sense to liquidate our 401k and pay taxes now?
    I realize that the answer to this question requires knowing what will be the new maximal tax bracket,something about which one can make only educated guesses.
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
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    #2

    Sep 10, 2009, 04:48 PM

    This is an impossible question to answer without knowing more specifics, but in general I think it is a bad idea to make the conversion now. Reason is that while tax rates may be going up, how much they're going up is a matter of speculation at this point. Plus, it is possible that they can go up retroactively for the year (which as you may recall is what happened when taxes went up in Clinton's first term). So you stand the risk of having to pay taxes at a higher rate and at the same time be pushed up into a significantly higher tax bracket. Given the talk about surtaxes on "the wealthy," and assuming you're talking about more than a $200K conversion here, I would wait until it's closer to the end of the year before proceeding. But even then we would need more details before being able to make a firm recommendation. Also, the rules for making the conversion are still a bit strict - you may have to wait for 2010 to be able to do this. One last point - at your age you should consider the possible estate planning implications of having a 401(k) versus a Roth IRA. If this is indeed a substantial amount of money, you should consult with an estate planner.

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