Regarding the Roth 401(k), it is a negotiated benefit within my union’s collective bargaining agreement. I’ve seen nothing in the benefits paperwork discussing income limits for contributing to the Roth 401(k). Where can I find more information regarding your statement?

Regarding my company stock, annually I transfer the qualifying stock to my brokerage account and sell some or all of the stock to invest in mutual funds. Of course, the decision of what stock to sell and when depends on purchase price and gain/loss from the sale. I use the ESPP for the 10% discount.

There is a workaround. Contribute up to $5,000/year ($6,000 if 50 or older) to a non-deductible IRA and 30 days later convert it to a Roth. (Make sure you fill out your tax paperwork correctly.)

Once you’ve converted your traditional IRA to a Roth, then the next year you can do the same thing, adding more contributions (indirectly) to the Roth. Hopefully, they’ll remove this silly income limitation for direct contributions.

At your income level, provided you have no consumer debt of course, you should max out your 401k contributions and your Traditional IRA contributions. Once the traditional IRA is converted to a Roth, all growth from that point on is tax-free.

p.s. as soon as your company stock vests, sell it and buy a more diversified mutual fund like an index fund. Can you say “Worldcom” or “Enron”?

My wife and I have an AGI around $190,000/year and we both contribute 15% to company matched 401(k)’s. I also contribute 2% to a newly instituted Roth 401 (k) through my workplace and 3% to my company’s stock purchase plan . In addition, I contribute to a Traditional non-deductible IRA on my own. I will (hopefully) receive a defined benefit pension upon retirement.

The Traditional IRA is fairly small at the moment, approx. $6000, with very small gains up to this point. If I were to convert the tax burden would be very small.

There is one question I have which I have not found an answer, that is: Can I make contributions to the Roth IRA AFTER conversion from a traditional IRA? Or will the converted amount sit in the Roth and grow (or NOT grow) according to the performance of the funds I select?

I would characterize my thinking at the moment as using all the retirement vehicles at the same time and use the diversification to hedge my bets. That is fund my 401(k), my ROTH 401(k), my traditional non-deductible IRA, and convert what I have in the IRA now to a ROTH IRA.

Make any sense? It can twist one’s mind into a pretzel thinking about all this.

More to consider:
1. If you are going to receive a pension outside of Social Security. If so, then your future tax rate will be even higher when you are drawing both SS and your pension. For example, my wife and I both draw a “retired” military pension which will be added to our SS pension later. So I’m taking no chances and converting what I can now.

2. When you convert, it will increase your AGI, which may make you ineligible to contribute directly to a Roth that year and you’ll have to do the two-step process that Steve Juetten mentioned in post #30. I had already made my Roth contributions and due to the nature of those contributions, it would be too complex to recharacterize them back to Traditional IRAs. So I’ll need to do a partial conversion this year and do the rest next year. Hopefully the 28% bracket won’t change next year.

3. I consider the possibility of the government taxing Roth withdrawals in the future slim. More likely would be that they might tax gains in the future. i.e. we might need to pay tax on the percentage of the withdrawal that was untaxed gains. Due to the complexity involved, I feel that even that possibility is fairly slim, but not impossible. You make your bets and take your chances.

4. Niner makes a good point in #16 with the means testing issue. But then you could say the same of all investment income. In the future, they could means test investment income in general the same way they test earned income now.

5. @Lucas, your mid-twenties is the perfect time to max out your Roth investments. All those many decades would grow tax-free!!!

6. An argument against conversion is that if you can afford to pay the tax on the conversion, then alternatively, you can invest that money in a taxable investment instead of paying the tax. So in the future, you *might* have higher taxes on the Roth withdrawal, but you *definitely* would have your “side” investment to consider as well.

To the original poster: Even attempting to make this “easy” is an admirable feat!

In the weeks and months immediately following 9/11, I was afraid that innocent Muslims, both American citizens and foreigners alike, would be subjected to extreme measures of vigilantism within our borders. I was afraid not only for their own individual well-being, but also for the sake of our national identity and consequently our standing in the world’s eyes.

For example: a local Tennessee TV news channel aired a sensationalistic report on a peaceful yet isolated Tennessee Muslim community dubbed “Islamville” earlier this year. Two days after this report aired, the Al-Farooq Islamic Center in Nashville was targeted by acts of vandalism. Following this shameful act, I was quite proud to see a rapid volunteer outreach by many others in the Nashville community in response.

While single incidents of violence or harassment occurred, I did not see a growing trend as I had dreaded. I hope this had at least some part to do with our shared memory of the fate of those Japanese Americans more than 50 years prior. I agree completely that we are collectively responsible for preserving our history in entirety for the sake of guiding our future actions.

Furthermore, I think we ARE managing to learn from our past. I do remember seeing open discussions about this particular chapter of US history on major media outlets following 9/11, which makes me believe that corporate news can be used for good after all…

To address your issue as to why German Americans were not rounded up, you should be able to concede two major points: German descendants are generally tougher to pick out of a crowd of 1940s Americans than Japanese descendants, and German Americans were both a much larger share of the overall national population, and more assimilated culturally as well. Not being alive at the time, I can only imagine how much easier it would have been to target and isolate the Japanese in comparison.

Ugh, after all that racial ugliness, it should a relative pleasure to discuss monetary policy, heh. I hope I can get to it today.

“As an American of Japanese descent, I agree that this happened. You neglected to mention that many of these US citizens and their families also had their assets and land seized and were never properly compensated.”

You are right and again I plead brevity.

“This is reprehensible, and should serve as a reminder of the heavy burden that our government has in exercising its considerable power.”

It should, but does it? I’m afraid that far too many Americans still view it as an acceptable wartime behavior, as opposed to an appalling similarity to the racial cleansing of the Nazis. While we didn’t kill Japanese Americans, the fact that we distrusted and imprisoned a group of American citizens due to the racial heritage (while ignoring all of those German-Americans) is disgusting.

“I have often wondered if there would have been more widespread popular violence or vigilantism expressed against Japanese Americans had the government not intervened, and I can’t quantify exactly what level would make it “right” for the government to isolate them so.”

I don’t know. Its a hard question. How many backpack nukes set off in major cities by Al Qaeda would it take before the US government started rounding up all Muslims? Or even people who just look like Muslims? Fear is a powerful force.

“Perhaps some things are not meant for us to pass hasty moral judgement on, but rather leave as open books for future generations to learn from.”

Unfortunately, are future generations learning it, let alone learning from it. The Japanese-American experience, just like the Native American experience, is often glossed over or ignored by history textbooks. I love America, but we should not try to hide our failures, but admit them and deal publicly with the consequences of them. Like the housing bubble – how stupid were we to think that housing prices would always go up?

“One can argue that the government has a well-established precedent and indeed a responsibility to act as lender of last resort to avoid catastrophic situations.”

Certainly – so why are they only loaning on multi-billion dollar companies? What about the thousands of small businesses that are collapsing due to their inability to get loans? If the government will intervene to avoid catastrophic situations, why is it only doing so to save the rich?

“Whether or not our country would have been worse off had companies like AIG, Citibank, Bank of America, GM, Chrysler, Goldman Sachs, JP Morgan, Wells Fargo, Morgan Stanley, etc. either failed or undergone significant and sudden downsize restructuring is up for debate, and we may never know what we avoided.”

We also don’t know what we could have achieved if those failures had been allowed. Capitalism requires failure – it exposes inefficiency, stupidity, and greed. But the government stopped that – instead it propped up companies that were incredibly poorly managed and sucked away capital from businesses that could have allocated it more efficiently. It rewarded the stupidity of those who endangered the entire US economy and protected them. I could barely accept that if the leadership of all those financial firms had been prosecuted, but none of that has happened. Again – the US Government has placed the interests of a few about the interests of the general population.

“What we DO know is that the majority of these bailout funds have been paid back (with interest), and the stock market has recovered back to non-panicked levels due to increased confidence in the US markets as the preferred method of capital investment ever known to humanity.”

If you actually track capital inflows/outflows – most of the money that average Americans pulled out of the stock market is still out of it – thus the 100′s of billions of dollars that have flowed into bond funds. Personally, I have been transferring all of my investment out of US markets due to repeated demonstration how much they are manipulated by the likes of Goldman Sacks.

“In an ideal world, I too would like to see those responsible for this crisis to be appropriately punished, but to hope that millions more hardworking Americans lose their jobs just to satisfy a general desire for vague justice seems extreme to me. What happened is not ideal, but I think it is more preferred among the spectrum of possible outcomes.”

And so capitalism dies a slow death. Guess what – choices have consequences. The Big 3 automobile makers have been making stupid choices for years: they have a reputation for making poor quality products that are too expensive due to the demands of the UAW. And the market has responded by buying fewer from them and more from Toyota and Honda. Do you really think bailing them out is going to change the general culture that caused the problems in the first place? Especially when President Obama ignores the rights of bondholders and gives large undeserved share of the company to the UAW? Again – these interventions didn’t save anything – they just delayed the inevitable. And those 10s of billions that were used to prop up those companies could have instead been invested in small, vibrant, innovative car companies that would have lead the US into the next century.

And the same with the big financial firms – they made stupid gambles and they should have been allowed to collapse.

The GOP is constantly harping how Obama is trying to make the US more socialistic. While I tend to agree with their assertions, I also think we already have a socialistic economy – one where profits are privatized and loses are socialized – a socialism for the Rich.

I think the all of the interventions that have been made, both by Bush and Obama, have been to prop up their supports without regard to the consequences to the Americans who will have to bear the burden of those trillions of dollars of debt. And whatever short-term pain has been avoided is just building the long-term destruction of the US economy – because no one, Republican or Democrat, is willing to make the hard, painful decisions.

“Amazingly over-simplistic and damning in narrative, but you unfortunately made the mistake of leaving out a critical fact. Executive Order 6102 did not “confiscate” any gold, rather it compelled all citizens to exchange the majority of their gold (with certain exclusions) for a fixed exchange price.”

Executive Order 6102 required U.S. citizens to deliver on or before May 1, 1933 all but a small amount gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 per troy ounce. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of the order was punishable by fine up to $10,000 ($166,640 if adjusted for inflation as of 2008) or up to ten years in prison, or both.

The price of gold from the treasury for international transactions was thereafter raised to $35 an ounce.
- Wikipedia.

So the government forces people to sell their gold, then immediately devalues the dollars it paid for that gold by 70%. And you consider that substantially different from confiscation? Interesting… I suppose then you would be fine if the government forced you to sell your house for $100,000, but then immediately sold it for $170,000 – particularly if it was to stop all of the real estate speculation that was ongoing.

“Although drastic and by some measures unprecedented, this was intended to fix a recurring problem in the early 1930s caused by dollar speculation and subsequent panics, all enabled by the Gold Standard.”

Please show how having a defined solid value for the dollar allows speculation.

“We ended up ditching said standard after all, and this was a huge catalyst in doing so.”

We ended up ditching the said standard because the US government was printing money and instead of accepting dollars, other countries were demanding redemption in gold. Thus the gold reserves were flowing overseas as a consequence of the deliberate devaluation of the dollar by the US Government and the Federal Reserve. The removal of the gold standard allows the Federal Reserve to print money without limit – as demonstrated by the doubling of the US monetary supply over the last few years.

“This is a great deal more complicated than I can give credit to, but I highly recommend a little self-education on this important subject.”

I have. Which is why I have come to the conclusion that the confiscation of the gold was to the determent of the average American and only for the benefit of the US Government.

Comment #8 from Quinsy asks about a tactic that is called a “back-door” Roth IRA and it is available under current rules for someone who is not eligible to make a Roth contribution after converting an IRA or qualified plan rollover. Here’s how it works: you make a non-deductible IRA contribution, wait 30 days, and then convert the account to a Roth IRA. Do the same thing next year, and the next year and the next year. All the other rules apply — must have earned income, leave the money in the Roth until age 59 1/2 and five years, etc. Send me an email at steve@finpath.com if you have additional questions on this approach.

Comment #19 from Brooklyn Money is right that the IRS allows the account holder to recharacterize a Roth IRA back to a traditional IRA and avoid paying taxes on a Roth IRA that has lost value. Must be done before 12/31 of the year the conversion took place. An account holder may be able to do the same with a direct rollover from a qualified plan, but the plan record keeper may not allow it. I did not cover this aspect or some of the other intricacies of a Roth IRA conversion because J.D. suggested the title be “Roth IRA Conversions Made Easy” and at some point even my eyes roll back into my head with some of this.

I’m avoiding the political issues that are raised because my momma told me to avoid religion and politics whenever possible

Thanks.

Steve Juetten, CFP®

Crazy.

Tough task.

I’d go with your gut and don’t agonize over your decision

Funny how a post on an inoffensive topic like IRAs became such a debate on government. And here’s to J.D. for not closing the comments! You are a tolerant man.

“Did the US Government confiscate gold from private citizens in the past? Yes”

Amazingly over-simplistic and damning in narrative, but you unfortunately made the mistake of leaving out a critical fact. Executive Order 6102 did not “confiscate” any gold, rather it compelled all citizens to exchange the majority of their gold (with certain exclusions) for a fixed exchange price. Although drastic and by some measures unprecedented, this was intended to fix a recurring problem in the early 1930s caused by dollar speculation and subsequent panics, all enabled by the Gold Standard. We ended up ditching said standard after all, and this was a huge catalyst in doing so. This is a great deal more complicated than I can give credit to, but I highly recommend a little self-education on this important subject.

“Did the US Government bail out “too big too fail” financial firms at the cost of 100’s of billions of dollars despite vast public opposition? Yes”

One can argue that the government has a well-established precedent and indeed a responsibility to act as lender of last resort to avoid catastrophic situations. Whether or not our country would have been worse off had companies like AIG, Citibank, Bank of America, GM, Chrysler, Goldman Sachs, JP Morgan, Wells Fargo, Morgan Stanley, etc. either failed or undergone significant and sudden downsize restructuring is up for debate, and we may never know what we avoided. What we DO know is that the majority of these bailout funds have been paid back (with interest), and the stock market has recovered back to non-panicked levels due to increased confidence in the US markets as the preferred method of capital investment ever known to humanity. In an ideal world, I too would like to see those responsible for this crisis to be appropriately punished, but to hope that millions more hardworking Americans lose their jobs just to satisfy a general desire for vague justice seems extreme to me. What happened is not ideal, but I think it is more preferred among the spectrum of possible outcomes.

“Did the US Government gather up Japanese-Americans and put them into prison camps during WW2? Yes”

As an American of Japanese descent, I agree that this happened. You neglected to mention that many of these US citizens and their families also had their assets and land seized and were never properly compensated. This is reprehensible, and should serve as a reminder of the heavy burden that our government has in exercising its considerable power. I have often wondered if there would have been more widespread popular violence or vigilantism expressed against Japanese Americans had the government not intervened, and I can’t quantify exactly what level would make it “right” for the government to isolate them so. Perhaps some things are not meant for us to pass hasty moral judgement on, but rather leave as open books for future generations to learn from.

“Did the US Government repeatedly break many of the treaties it made with Native Americans and kick them off their promised land? Yes”

Other than to point out your use of another generalized statement, I have no argument that this also happened. Please see above.

“Did the US Government (Supreme Court) rule that it is legal for a government to confiscate land from private individuals and give it to developers? Yes”

Ah, eminent domain, one of the favorite citings of big government opponents as well one of the most easily refuted. The fact that you mention the Supreme Court does half the work for me. You see, this necessarily admits that when this issue has presented in the past, it is exposed to our thorough constitutional system of checks and balances. I won’t do much here except to point out the relevant excerpt from the 5th Amendment to the Constitution of these United States, which states “…nor shall private property be taken for public use, without just compensation.” Just compensation is usually taken to mean a minimum of market value of the property in question. Again, a bit different than the big bad government stealing from its citizens with impunity.

“Did the US Government loan money to large banks for basically 0% interest and allow them to buy US T-Bills at 3%, in effect transfering money from the tax payer to the banks? Yes” (sic)

This ties into my above reponse regarding bailouts. Again, this is far from ideal, but our banking system at the time was under incredible strain and decisions were willingly made to err on the side of overcaution than possible collapse. One of many reasons I support financial reform which includes increased regulation of our banking system as well as guidelines to reduce the catastrophic impact that any one company can have on our economy as a whole when lead into failure. I believe that what we have lived through in 2008-09 was due to ineffective policing of our capital markets and banking system as well as a limited arsenal of tools available to our government to fix the problem once it started showing. What was done seems to me to be acceptable as a band-aid fix, but there is no doubt we need more in the way of prophylaxis moving forward.

“The social contract between the US Government and Americans has been broken repeatedly in the past. The US Government does not always do what is best for the average American. Why do you think that 70% of Americans are angry at the Federal Government’s policies (Rasmussen)?”

If you ask me this question, I will argue that if you expose everyone to the same factual information, we would have much more enlightening and productive discourse. Instead, we as Americans have time and time again expressed our displeasure with the important task of self-information, and overwhelmingly demand an outsourced version of the “truth” which is willingly and happily supplied in pre-packaged, opinionated, and obfuscatory fashion by corporations driven by profit motive. Such news outlets have a great deal of influence on popular opinion, and therefore I don’t trust “70% of Americans” to know their asses from their faces these days, regardless of what a private and opinionated company says in their polls.

Whew, that was cathartic. I hope this falls more in line with you standard of “honestly analyzing the basis of my own belief system”, but in case you missed it earlier today, I did offer an apology for my tone in replying to uncertain algorithm before you posted in reply. I now offer you my own challenge: Before you try calling others out for not properly refuting arguments, you should try to avoid overgeneralizations in your own arguments. Regardless of what you believe, it can make one sounds just like the talking heads that lead our country down a path of illogical and self-defeating rhetoric. Better that you take the time to thoroughly bore everyone around you, I suppose. (I truly didn’t intend for this to be so involved, and it seems as though my late lunch break turned into something of a manifesto. Apologies all ’round!)

I provided two examples where the government has not honored its contract due to financial problems, and if you think our society is done with those, you are quite the optimist (which is okay). I am historically warning people that the government has not honored its past contracts (please show me where the U.S. constitution states that the government can confiscate gold, or bail out feckless corporations).

Ironically, Fredo has provided many more examples (some of which I wasn’t even aware of). I hope that you don’t think a Roth-IRA is a guaranteed tax-sheltered retirement account because in the future, they may need access to that.

Otherwise, I do actually hope that you are right. But I think that financial advisors and bloggers would be wise to call attention to this. By providing people some information on what’s happened in the past, it allows for more informed decisions, and less surprises down the road.

I’m trying not to call you names or pigeonhole you into any group of people, but it sounds like you really don’t belong on a site like this. If what you say here is really what you feel, then you believe the government is never to be trusted, and the social contracts between the government and its citizens should be treated as null and void. Instead of planning within the established system as the rest of us are trying to do, maybe you should be preparing for a future more like what certain hysterical right-wing talk show hosts warn us about. Take a hike and leave the rest of us sane people be, thanks.

You have the right to think that, and J.D. has the right to keep me from this site. However, pointing out that the government has not always honored its contract is not against the rules (that I know of), and letting people know that things could change is a wise idea. I’d rather be proactive than reactive, and letting people know some history prepares people. I tend to think that prepared people will do better in the long run than people who are unaware of major historical events.

I also hope that people who are managing their finances, like you and I, will learn to vote with our concern about where our society has been going over the past few decades (these problems are nothing new). If we stay out of debt and wisely manage our budget, shouldn’t we expect our country’s leaders to do the same? By the way, I am not defending nor supporting either party, as they’ve both contributed to the problem. But I do find it odd that people who are concerned about finance lack some concern about the way the government manages money. Poor federal management will hurt us all even if we do things right.

Otherwise, I agree with you that people should hope that our government will honor its contracts, but also recognize that it may not, and has not in the past.

Good post, by the way.

I really liked your website Steve. Looking around at other financial planners, they lack the simplicity your has.

The fix involves rolling deductible IRA amounts into the qualified plan leaving only nondeductible amounts left in the IRA for the ROTH conversion.

Not all plans allow IRA rollovers, but if the fact pattern applies, you will be able to convert nondeductible IRA contributions to a ROTH tax free.

Fines are not the government’s way of collecting unearned income from law-abiding citizens. People who break laws and in doing so damage public safety or infrastructure are fined to cover repair of the damage they’ve done, the cost of law enforcement, and/or to compensate the injured.

All you have to do is look at the countries without effective government to see what happens when a public financial structure doesn’t exist. No roads, no public safety, no sanitation, no power/water infrastructure … need I go on?

take a look at the “Alternative Minimum Tax” article on Wikipedia. It actually gives a pretty good explanation of it, and the calculation about whether or not you’re subject to it is pretty simple. Actually, lots and lots of people are subject to it (those who make over something like $75,000 per year) but it just so happens that what they owe under the normal system is higher, hence the IRS has no reason for charging an “alternative” minimum. On the other hand, I think you can also make too much money to pay the AMT, because the AMT only has two brackets, I think, like 26% and 28%, so if, for example, 90% of your money is in the 35% bracket, then the IRS gets more from you under the regular system. It’s nuts.

But, yeah, trying to calculate this and guess the future is still maddening.

BTW, JD, an article on fully explaining the Alternative Minimum Tax might be a welcome addition to GRS.

One thing I don’t think the poster pointed out is that you can “recharacterize” back to a traditional IRA after converting to Roth if you want.

Concerning uncertain algorithm’s comments – I am surprised at your strong reaction. Particularly when you don’t bother to address and refute his comments. Instead, you engage in an emotion-laded attack on his person. This is demonstrative of someone who is unable to refute the argument, but is unwilling to honestly analyze the basis of their own belief system.

“There really is no basis for what you are stating.”

Did the US Government confiscate gold from private citizens in the past? Yes

Did the US Government bail out “too big too fail” financial firms at the cost of 100′s of billions of dollars despite vast public opposition? Yes

Did the US Government gather up Japanese-Americans and put them into prison camps during WW2? Yes

Did the US Government repeatedly break many of the treaties it made with Native Americans and kick them off their promised land? Yes

Did the US Government (Supreme Court) rule that it is legal for a government to confiscate land from private individuals and give it to developers? Yes

Did the US Government loan money to large banks for basically 0% interest and allow them to buy US T-Bills at 3%, in effect transfering money from the tax payer to the banks? Yes

The social contract between the US Government and Americans has been broken repeatedly in the past. The US Government does not always do what is best for the average American. Why do you think that 70% of Americans are angry at the Federal Government’s policies (Rasmussen)?

The US Government is not “evil” (as opposed to say, Microsoft…) However it is populated by lots of people who primary aim in life isn’t to promote the welfare of the general American, but to keep their job and hopefully move up the GS scale and/or move to a higher paying job in the private sector. Consequently, they will often make decisions based on that thought process and either ignore or justify 2nd or 3rd order consequences of those decisions.

Now you may believe that the US Government will never change the Roth tax rules, but that doesn’t mean it isn’t a reasonable question to bring up. Because you have no reasoning or facts to back up your assertion – it is a statement of faith. You are saying “I believe the US Government will not try to steal the money I put into a Roth IRA despite the fact that it is constantly trying to steal my money through taxes, fees, fines, etc.”

Just because you are paranoid doesn’t mean they aren’t out to get you.

Now you may be right, but to reject that possibility out of hand is as foolish as the people who rejected any idea that housing prices could ever drop or bennie babies/baseball cards/etc might someday be basically worthless.

The reason that our whole country’s financial system is in the dire straits is because far too few people questioned the comman wisdom of the day. They instead build an massive structure on a base that was fundementally unsound. And unfortunately, that trend continues today – instead of admitting that housing prices were vastly inflated by years of low interest rates, the Government is doing everything in its power to keep them elevated. And it is spending billions and billions of dollars to do this. And it is utterly doomed to failure – all they are doing is delaying the collapse while racking up huge debts for our children and grandchildren to deal with.

Personally, I use an Roth IRA – or at least I did until I exceeded the income cap. And when I drop back down below them, I’m sure I’ll be back to using it again. I’m not too concerned about IRAs being seized, like they were in Argentina a few years ago, but I am willing to admit that as foreign investors gradually stop buying US debt and Congress starts looking around for alternative sources of funding, the trillions invested in retirement accounts would start looking awefully appealing. But they would have to grab them in such a way that they aren’t immediately thrown out in the next election, which would be hard considering how consistantly most older individuals vote. Its far easier for them just to increase inflation and leach away the purchasing power of those dollars. And that is what probably will happen.

For anyone trying to make up their minds, good luck. Financial decisions like this can be crazy…

You’re being way too hard on uncertain algorithim. Sure, some of his or her terminology choices were a little extreme, but the basic idea that in 30 or 40 years the tax-free benefits of a Roth IRA will be preserved exactly as they are is not quite so clear-cut as you seem to think.

It’s not hard to imagine that, for example, maybe your Social Security benefits will be completely means-tested to a degree that the extra income you draw from your Roth IRA vs. what you would have gotten from your traditional is effectively zero because it only reduces your SS benefit. This type of thinking or planning or hedging for this sort of situation is certainly not the sole provence of right-wing paranoia.

It is actually not at all unlikely from a Congress that recently placed a “Medicare surtax” on capital gains income.

To address your second question, it sounds like you made non-deductible IRA contributions in the past, meaning that you had already paid your income tax on the money when you added it to your IRAs. If this is the case, you should have been filing an IRS Form 8606 (http://www.irs.gov/pub/irs-pdf/f8606.pdf) every year that made such a contribution, and should therefore have a record of the overall basis in your accounts that has already been subjected to income tax. This only comes into play when money is distributed from the IRA, and Roth conversion counts as such an event. You will need to talk to your tax preparer to make sure this is taken into account, as it will definitely reduce the tax bill you pay in the year (2010) that you convert your IRAs. Cheers, and good luck!

When talking about “income in retirement” to make the tax bracket decision is that just working income or does that include dividends and capital gain income too?

Investment gains are only taxed a flat rate at this point, right? Does that figure into your tax bracket? If it doesn’t, could it 40 years from now with tax changes? I think I am very confused.

I did convert our Traditional IRAs to Roths (for the tax diversification)– some of those we were above the income limit for so we didn’t get any tax advantage on the money when we put it in, are the conversion fees the same?

I do believe the government will honor the Roth contract, but I also believe they will probably need to increase taxes some other way.