Ask an Advisor: When Does Your Tax Bracket Make Roth Conversions a Smart Move?

Core Insights - The article discusses the considerations for converting a traditional 401(k) into a Roth 401(k), particularly focusing on the implications of current and future tax brackets [2][5]. Current Tax Bracket - The current tax bracket is a known value, with an example provided of a combined income placing a couple in the 35% federal tax bracket [6]. - Variability in income from year to year can complicate the determination of the current tax bracket, suggesting that analysis should be conducted later in the year for accuracy [7]. Future Tax Bracket - Estimating the future tax bracket is more complex due to uncertainties over decades, including changes in career, income, and tax laws [8]. - Despite the uncertainties, reasonable assumptions can still provide useful insights for planning [8]. Roth Conversion Considerations - Roth conversions may be beneficial if the current tax bracket is lower than the expected future tax bracket, although being in a high current bracket generally suggests that conversions may be less advantageous [5].