THE OPTIMAL CONVERSION OF A TRADITIONAL IRA TO A ROTH IRA ACCOUNTING FOR THE EFFECTS OF A TAX TORPEDO
Open Access
Author:
Hamsher, Ian Reynolds
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
Dr. Brian Spangler Davis, Thesis Supervisor Louis Gattis Jr., Faculty Reader Dr. Brian Spangler Davis, Thesis Honors Advisor
Keywords:
Roth IRA Finance Economics Retirement
Abstract:
This paper and the model attached is to answer an individual’s question of, “Is it optimal for me to convert my Traditional IRA to a Roth IRA?” The first chapter of this paper discusses retirement. It goes into how many people do not plan for retirement correctly especially since people are living longer. The second chapter of this paper dives into individual retirement accounts (IRA’s). It goes into explaining how they are beneficial for an individual to plan for retirement and talk about the rules and regulations along with the difference between a Roth IRA and a Traditional IRA. The last part of this chapter talks about the Roth IRA conversion and the benefits and drawbacks from it. The third chapter of this paper discusses a tax torpedo. This is the most important differentiate between my model and other models out there. A tax torpedo is a phenomenon that occurs and makes your marginal tax rates higher than expected in retirement which can affect if you want to convert to a Roth IRA. The fourth chapter is the explanation of my model. It goes into describing how it works, what it finds, and how it is different. Lastly, this paper acknowledges that this is not the end of this research and discusses the different ways this model can help future research.
