Retirement Questions and Outrage

Last week's column followed up with an explanation of a Roth IRA recharacterization, which essentially is a "do-over" for investors who converted to a Roth and then watched their account values plummet. Without a recharacterization, they would owe tax on the converted amount, not the lower current value.

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The discussion of Roth IRAs prompted this question from "countylineman." "I have a question: Is there any advantage to converting an IRA to a Roth a little at a time in order to avoid paying the higher tax bracket rates? i.e., converting $25,000 would be taxed at 15 percent, but wouldn't converting $100,000 be taxed at 15 percent on the first $25,000, and the remaining $75,000 be taxed at 33 percent? So, wouldn't you want to convert only the amount of money at a time that keeps you in the lower bracket?"

Countylineman is correct.

A Roth IRA conversion could push you into a higher tax bracket if it's large enough. For a taxpayer jumping from the 25 percent tax bracket to the 28 percent bracket, it might not be a big deal. But somebody in the 15 percent bracket should be careful, as their next step might be a 10bpercentage-point jump up to the 25 percent bracket. One other warning: You'll need cash available outside your retirement account to pay the tax due on the conversion.

That leads to the final word from "Tired of Idiocy," who pointed to this need when he questioned who has the cash available to pay for a large Roth IRA conversion. Wrote this reader, "Stupid bad advice that helps no one."

Ouch.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com.