|
Roth Transfer Calculator Glossary of Terms
Definitions
- Amount to convert
- Amount
to convert from a Traditional IRA account to a Roth IRA. It is important
to note that some high income households do not qualify for a Roth IRA
conversion. Currently, anyone with an adjusted gross income over $100,000
cannot make a Roth IRA conversion. For the purposes of this calculator,
we assume that your income does not limit your ability to convert to
a Roth IRA.
We also assume that you are paying any taxes owed
with funds that you have available outside of the IRA you are converting.
The IRS treats any money not directly transferred to the new Roth
IRA as an early withdrawal - even if that money is used to pay the
tax bill caused by the conversion. If you do not have adequate funds
outside of your IRA to pay the tax liability on a conversion, you
probably should not consider converting your Traditional IRA to a
Roth IRA.
- Non-deductible
contributions
- Amount
contributed to the Traditional IRA you are converting that was not tax
deductible.
-
Current tax rate
- Current
marginal income tax rate that will apply to conversion amount. Please
note that the marginal tax rate for your conversion may be higher than
your current marginal tax rate if the conversion moves your AGI into
a higher income tax bracket.
- Tax
rate at retirement
- Expected
marginal income tax rate at retirement.
- Investment
tax rate
- Expected
marginal tax rate (base this on expected capital gains rate) for investments.
- Current
age
- Current
age.
- Age
at retirement
- Desired
age at retirement.
- Rate
of return
- The annual
rate of return for your IRA. This calculator assumes that your return
is compounded annually. The actual rate of return is largely dependant
on the type of investments you select. From January 1970 to December
2007, the average compounded rate of return for the S&P 500, including
reinvestment of dividends, was approximately 11.4% per year (source:
www.standardandpoors.com). During this period, the highest 12-month
return was 61%, and the lowest was -39%. Savings accounts at a bank
can pay as little as 1% or less.
It is important to remember that future rates of return
can't be predicted with certainty and that investments that pay higher
rates of return are generally subject to higher risk and volatility.
The actual rate of return on investments can vary widely over time,
especially for long-term investments. This includes the potential
loss of principal on your investment. It is not possible to invest
directly in an index and the compounded rate of return noted above
does not reflect sales charges and other fees that funds and/or investment
companies may charge.
|
|
