How long will the Roth IRA be left to compound before distributions begin?
The converted amount must be allowed to compound its income and gains to make up for the taxes that were paid. If conversion taxes are paid from a taxable account and the IRA earns at least 8% annually, it takes at least seven years of compounding to reach the break even point. A longer compounding period generates more after-tax wealth for the owner than keeping the traditional IRA would have. A lower rate of return means a longer compounding period is needed to break even. Will the tax rate be different when distributions begin? If the tax rate will be lower than it is today, it might not make sense to pay taxes at today’s rate unless there is a substantial compounding period. Will future Social Security benefits be taxable? If the taxpayer estimates having a high enough retirement income for benefits to be taxed, a conversion could reduce those future taxes. The Roth distributions are not included in gross income under current law while traditional IRA distributions are. If IRA dist
