Roth IRA Conversion If You Think Hyperinflation Is Coming?

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dryam2000's picture
dryam2000
Status: Gold Member (Offline)
Joined: Sep 6 2009
Posts: 293
Roth IRA Conversion If You Think Hyperinflation Is Coming?

At the last minute I'm reconsidering whether I should convert my traditional IRA to a Roth IRA.

Under the assumption that there will be very high inflation, or possibly hyperinflation, over the next 15 years (I'm 44 years old), and that taxes will go up significantly, would it be good to make the conversion now?

The IRA in question is a small portion of my net worth & contains only gold/silver mining companies (went up about 200+% this year), and I expect the gains to continue at a slightly lesser pace over the next 3-4 years or so. After the miners have exploded I'll rebalance into energy, agricultural production, and Asia. In 15 years I expect to be owning mostly very stable high dividend paying foreign stocks, and I expect the U.S. to be a second tier country by then. My income from high dividend stocks could be pretty high in US dollars depending on high far the dollar falls.

My current income is $280k, so I'm already in a high tax bracket.

Any thoughts?

Poet's picture
Poet
Status: Diamond Member (Offline)
Joined: Jan 21 2009
Posts: 1892
"Which of my many exquisite diamonds should I polish first?"

If you have the income to absorb the tax hit, conversion sounds like the better option. Taxes will likely be higher in the future, and diversifying your retirement savings accounts as a hedge sounds like the best option - especially when it's only "a small portion" of your net worth.

You might also consider diversifying into getting self-sufficient and resilient in case money isn't everything in the "new world" (see the "What Should I Do?" series). Holding physical metals would also be prudent, as conceivably you may have to exchange them or use them for barter one day.

Some high net worth individuals also consider foreign investment accounts held offshore in countries without reciprocal financial reporting agreements with the U.S. - not just foreign stocks held in domestic investment vehicles - although I do not know how that would be safely accomplished, and would suggest consultation with a financial/legal professional.

With all the details provided,  I suspect no matter how high your taxes will be in the future, your income will be higher anyway, and you'll still be living in the lap of luxury compared to the rest of us.

Poet

aggrivated's picture
aggrivated
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 572
Re: Roth IRA Conversion If You Think Hyperinflation Is ...

I don't know what the conversion will cost you in today's dollars, but all of the signs point to higer taxes in the future.  One possibility with a Roth IRA is a self directed one.  Check out the possiblities with that approach..  Under that scenario you manage properties or similar holdings within the IRA vehicle.  One of the advantages of this is that you control it.  Another that may be significant is that in the future if the US decided to use retirement funds for keeping social security afloat, I don't think they will take on managing rental units or whatever. This may well prevent them from confiscating your holdings.  You may be able to dodge two bullets with this one.   Good Luck!

VeganDB12's picture
VeganDB12
Status: Platinum Member (Offline)
Joined: Jul 18 2008
Posts: 756
Re: Roth IRA Conversion If You Think Hyperinflation Is ...

I think there are a lot of good points being made here.  However, I think a case can be made for not converting at this time based on age. The very young and very older (so to speak) may have more to gain from the conversion that those in the middle.

 

This is an article I read last week that gives a few reasons why conversion may not be for everyone:

http://articles.moneycentral.msn.com/Taxes/PreparationTips/have-not-conv...

"The traditional IRA is a tax-deferred investment. You pay taxes only on the distributions from this investment, not on the income earned. The big advantages are that you:

  • Get a return on the dollars that otherwise would have been paid in taxes.
  • Pay your tax later on, with inflated dollars.
  • Get an income-tax deduction (depending on your income) when you make the original investment.

The Roth IRA is a completely different animal. You get no tax deductions. But you get no tax hit, either. All distributions of principal and income may be completely income-tax free."

I am not sure what you should do just food for thought. Best-

Denise

skywillow's picture
skywillow
Status: Member (Offline)
Joined: Jan 11 2010
Posts: 12
Re: Roth IRA Conversion If You Think Hyperinflation Is ...

If you think hyperinflation is here.

My opinion is stop putting any $$ into tax-deferred savings and buy physical gold and silver.

Depending on your age, 59.5 yrs old is the date when no penalties apply to your distributions, think about making distributions.

Consider distributions (with or without penalties) and put $$ into gold, silver, farmable property, solar cells, greenhouses, education, etc.

I believe that anytime soon, the value of savings will sink drastically or dissappear, especially if denominated in fiat currency.

Anyone who distributed from an IRA or 401k in January 2010 (with or without penalties)  made back their taxes and penalties by December 2010 if they had invested in gold and silver.

This is unconventional advice for volatile times.

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