If you are converting 1,000 in the 22% bracket, you sent $220 to the federal government that you 1) paid at least some capital gains tax on (sales price less cost) and 2) you no longer have to invest in taxable. It’s gone. And you have to take the lost returns into account on that- if it was in cash you were already experiencing opportunity cost of holding the money out of the market. If it would have been in stocks, then a lot of opportunity cost. The money to pay the taxes has to come from somewhere. You aren’t transferring the tax money into a Roth.cbeck wrote: ↑Thu Jun 17, 2021 9:15 pmSo, I have $1000 in my after-tax account on which I will be obliged to pay tax on the income and gains it generates out to the horizon. Since I am in the X% tax bracket, X% of my TIRA is the identical amount of $1000 which actually belongs to Uncle Sam including the entirety of the income and gains it generates in the future assuming for the moment that my tax bracket never changes. After the conversion Uncle Sam's chunk of what had been my TIRA has disappeared with no remaining tax obligation and now the income and gains of the $1000 from my after-tax account are entirely exempt from any taxes forever there in my Roth. What opportunity cost have I lost?lazynovice wrote: ↑Thu Jun 17, 2021 7:59 pmI think the first point is because you aren’t replacing? You are paying the taxes you owe. Your Roth is bigger but your after tax account is smaller by the same amount. And you lose the opportunity cost of the after tax investment. He discusses that as one of the things people miss.cbeck wrote: ↑Thu Jun 17, 2021 7:11 pm ….
Another point that I don't see addressed in most of these discussions is the benefit from paying for the Roth conversion with after-tax funds, thereby enabling us to replace the portion of the TIRA which belongs to the govt with our own money….
Having done my conversions between the ages of 61 and 70 when my taxable income was close to zero and having a (much) younger wife, I don't see how having most of my assets in the Roth could fail to pay off.
He says right in the paper that conversions at 0% are a no-brainer.
And after tax accounts get a step up in basis at death. Which is not even discussed in the article since he ignores estate issues pretty much.