[broiler]

The income cap removal for Roth IRA conversion was a law that passed in the last year and it really has no impact on the majority of people. I have never seen a good calculation that shows how it benefits anyone that isn't really close to the current income limit for Roth IRAs.

I have also never seen a calculation that takes into account the current state tax impact. The thing that you have to remember is that the conversion amount is taxable to the state. If you plan on moving to a low/no income tax state when you retire, then the conversion is an even worse idea. Why pay 5-10% now on income that didn't need to be taxable?

The biggest problem is that the high income people that the new law targets are paying 33%+ in state and federal income taxes, without additional income from a Roth conversion. You don't have to take this money out until you are 70 and the required minimum distributions are very unlikely to be at a level that causes you to reach the same income tax rate, assuming that the tax brackets stay the same. A high income person is likely to have a higher taxable income today than they will in the future when they would draw from the IRA accounts. The big error in many calculations is that people don't remember to index the high end of each tax bracket for inflation. At 3% over 20 years, the 15% tax bracket for a married person would cover taxable income over $100k. I realize that some people might say that costs will also rise and negate this factor, but if you are in a high cost of living area today, will you move to a lower cost area for retirement?

The quick summary of this whole topic is that a Roth conversion is still a good idea for the same people today that it will be in 4 years.

Just noticed an area that needs to be addressed. The taxable amount of a Roth conversion is equal to the untaxed balance that is converted. In other words, if you are rolling a 401k or a fully deductible IRA, the entire balance of the conversion is taxable. Only a non-deductible IRA or certain other rollover will create a result that isn't a fully taxable conversion.