Once upon a time, retirees could pretty much count on lower taxes later in life, and in general, converting to a Roth under those conditions would make little sense. Why? When you convert, you must pay income tax on the money that you move into your Roth. Why pay now at a high rate when you can make withdrawals later and pay tax at a low rate? However, a lot of people — a stunning 86% in the TD Ameritrade survey — believe it is now likely that their income taxes will go up in retirement, largely because of the huge deficits the nation is running as a result of the recession, financial crisis and war. If a higher tax rate looms, converting to a Roth now may make sense. A Roth has another tax advantage, in that withdrawals do not count as income against the taxable level of Social Security benefits, which is not the case with a traditional IRA. But there are still many unknowns. For one thing, our cash-strapped government may ultimately renege on the tax-free aspect of investment gains in a Roth. That would seriously erode the value of converting today.
See if you should convert to a Roth IRA:
Introduction: Traditional IRA vs. Roth IRA
When Will You Start Making IRA Withdrawals?
How Will You Pay The Roth Conversion Tax?
Will You Convert Your Entire IRA Or Just Part?