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05-20-2014, 02:05 AM
(This post was last modified: 05-20-2014, 02:05 AM by Jimbo.)
I have a small portion of AAPL in an IRA account and thinking of transferring half to the Roth before the split.
Would like to get some educated opinions of the good and the bad of doing this transfer.
If I were to transfer it would cost me north of $4k to transfer (uncle sam).
The wife is not keen on this as she feels the Roth will probably be taxed in 20 years (my retirement horizon).
What say you all??
Jim
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Interesting question Jimbo but not one that I can definitively answer. It all depends on your current income and tax bracket, your expected income and tax bracket at retirement, what funds you have available to pay the taxes due on the conversion, etc.
If you are in the 39.6% tax bracket it would take a lot of growth over the years to be able to make up the difference and make it worthwhile, especially if you are planning on paring back lifestyle at retirement and may be in the 15% or 25% bracket then. Also factoring in your wife's concerns about the uncertainty of rules on the ROTH by then. Personally, I don't think there will be any significant changes to the rules, but we are talking about politicians here.
I've always lived by the motto "Happy Wife = Happy Life", and if you can't convince her it's a good idea, it may not be worth the few bucks you might possibly save 20 years down the road for her to be unhappy about it.
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Agree that it is a tough call, and depends a lot on predictions about tax rates and regulatory framework decades away. If I had to gamble, I'd bet that ROTHs will still be tax free in 20 years, but who knows.
But as I read your post again, I'm not sure exactly what the question is. Are you more interested in the prudence of transferring some to the ROTH, or are you asking specifically about AAPL and timing with respect to the split?
AAPL has in my opinion become more of a dividend growth stock and not the high flyer it was. A huge tax bill to pay with most of its high flying days behind it. The time to make the transfer was 10 years ago, not today. Keep the $4k and leave it in the IRA is my suggestion.
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From a dividend growth perspective, I prefer a Roth so that the dividends and the shares purchased with those dividends are tax free. I converted my IRA to a Roth and paid taxes for that reason, and I'm betting that there won't be some catastrophic policy change that causes me to pay those taxes twice. AAPL is becoming a dividend growth stock, after all.
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Unless a person's tax situation goes from very low to very high, Roth vs traditional would seem to be a wash to me. With the Roth you get tax free distributions, but forgo as much as three or four decades worth of compounding on the Fed's dollar. On the other hand, if a person is in the 15% to 25% tax bracket, taxes will never likely be lower, so going Roth could provide a significant benefit. I tend to think that for most, the traditional is best, if nothing else for the emotional health related to seeing one's accumulations build much more quickly.
Alex
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Thanks for all the responses.
I am still considering this transfer as the stock with splits cost has been reduced.
I am sure AAPL will not be the high flyer that it has been in the past but I believe with the upcoming split and the option for others to "get into" AAPL it will have some gas in the tank.
I believe with the split there is the opportunity to turn another 16K in profit. Plus the Dividends for the next 20 years.
I will give the tax lady a call and see what she has to say and will re read all of your input later.
Jim
