For those of you who are unfamiliar with this concept, I would compare it to winning Powerball, and deciding between the lump sum or the annuity. In other words, you are deciding to either pay the taxes now or at some point in the future. It all comes down to two basic questions, when do you think you will need the money, and when is the optimal time to pay the taxes? Well, seeing that the tax component is an inevitability, the real questions should be is there a way to reduce your tax exposure, and how can it be done effectively?
Before we get into the technical aspects of this strategy, let’s first understand how a Roth IRA works, and why the conversion makes sense for those with enough time and the prerequisite assets to start down this winding road.