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- Title
The Impact of Rates of Return on Roth Conversion Decisions and Retiree Savings Wealth.
- Authors
Coopersmith, Lewis; Sumutka, Alan R.
- Abstract
A tax-optimal retirement savings withdrawal model, implemented as a linear programming application, is used to compare savings wealth growth when Roth conversions are permitted (RC) and when they are not (NoRC). Evaluations are made for combinations of percentage rates of return (ROR) for taxable, tax-deferred, and tax-free savings. PctDiff, the diff erence between tax-free and tax-deferred (TD) account RORs, is an important conversion consideration. When investment strategies target PctDiff s at two percent or greater, RC provides substantial benefi ts. As PctDiff increases, the percentage of initial TD savings that should be converted rises, the time to recover savings wealth lost to conversion-related taxes declines, and savings wealth growth surges. When PctDiff is less than two percent, savings wealth growth is small and savings wealth loss due to conversion-generated taxes persists for more than 13 years; retiree health and prospects of living long enough to realize savings wealth gains becomes a vital concern. Conversions are best made relatively early in retirement and at varying annual amounts. Conversion of all initial tax-deferred savings in the fi rst year of retirement rarely results in maximum savings wealth growth.
- Publication
Journal of Personal Finance, 2017, Vol 16, Issue 1, p29
- ISSN
1540-6717
- Publication type
Academic Journal