Is Suze Orman the idiot or am I?

[maxtower]

Suze's column

She says that in 2010 you can convert your traditional IRA into a Roth and there is no income restriction. She says this is good because you're withdrawing tax free out of the Roth down the road. But she also says that you'll be taxed on the Traditional at the time of conversion. I don't understand the advantage here. Her article didn't offer enough detail in the explanation. I was hoping one of you finance gurus who keep up with this could let me know exactly how beneficial this is.

I believe if you pay the taxes now rather than later, you don't really gain anything, unless you know for certain when you'll have the higher tax rate. What am I missing about this supposed "big opportunity"?

If you pay the taxes now, you'll be compounding a smaller amount of money but with no taxes due at the end.

If your tax rate is the same later, you'll be paying a lot of taxes on a much bigger pile of cash because you compounded before taxes.

((0.66 x 1.08) x 1.08^29) = (1.08^30 x 0.66) where 1.08 is your average return and 0.66 is the money you keep after taxes.

Can someone please explain to me exactly how this rule will work, so that it is better to pay taxes now rather than later? Is some portion of the money tax free? If I roll my 401k into a Trad. IRA, and then in 2010 will I be able to roll it into a Roth tax free?

Obviously if you are going to pay a higher tax rate later, then this is a great deal.

Max