Should I use the back door Roth IRA conversion to convert my traditional IRA to a Roth IRA?
I have a traditional IRA valued at $40,000 that was established 10 years ago entirely from an employee stock ownership plan (ESOP) plan from a previous employer. There were no contributions by me. Should I use the back door Roth IRA conversion to convert it to a Roth IRA? I do not have any other existing IRAs, just a 401(k) plan from my current employer.
The answer to your question has everything to do with taxes. If you decide to do the conversion in one fell swoop, you'll pay taxes on the entire amount in one year. This could push you into a higher tax bracket, thus penalizing you with more taxes.
If you are comfortable with this and would rather get it done with all at once, go for it.
Otherwise, you can convert portions over several years, depending on your income and what tax bracket you are in for a given year. If it were me, I'd do a conversion in a year when my income was lower, or convert an amount that would keep me in my current tax bracket and wouldn't push me into a higher one.
Good luck! I hope this helps!
It's tough th correctly answer without knowinng more information (your age, income). Check with your tax advisor to see if you will pay long-term capital gains on the sale of the stock. If you will, i would strongly consider converting. Your tax advisor will know what to do here.
This would depend upon your tax rate & other variables including your age, tax braket, plans for the future etc... I cannot begin to give you solid advice before I asked a lot more questions. Generally speaking, the younger you are & the lower tax rate you are in makes a Roth conversion more attractive.
Hope this helps and best of luck, Dan Stewart CFA®