Are you making this Roth conversion mistake? Here’s the BETR solution you should know about — and how to implement it

<h1>Are you making this Roth conversion mistake? Here’s the BETR solution you should know about — and how to implement it</h1>
<p>Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below.</p>
<p>Most investors approach Roth conversions with a simple question: Will my future tax bracket be higher than my current one?</p>
<p>On paper, that seems like the most important question. A Roth conversion means taking a tax hit today to avoid one later, so if you expect to be in a lower tax bracket in retirement, the strategy is less appealing. If pensions and required minimum distributions are likely to push you into a high tax bracket in retirement, the conversion makes much more sense.</p>
<h2>Top Picks</h2>
<ul>
<li> <p class="yf-1fy9kyt">Thanks to Jeff Bezos, you can now</p><a href="https://moneywise.com/c/1/276/1456?throw=DM1_yahoofinance&amp;placement_syn=placement_1&amp;utm_source=syn_yahoofinance_mon_aff&amp;utm_medium=BL&amp;utm_campaign=170512&amp;utm_content=syn_0330ae19-8c35-43ec-8bee-e52eff407755">become a landlord for as little as $100</a>— and no, you don't have to deal with tenants or fix freezers. Here's how</li>
<li> <p class="yf-1fy9kyt">Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake —</p><a href="https://moneywise.com/dave-ramsey-warns-nearly-50-of-americans-are-making-1?throw=DM2_yahoofinance&amp;placement_syn=placement_1&amp;utm_source=syn_yahoofinance_mon_aff&amp;utm_medium=BL&amp;utm_campaign=170512&amp;utm_content=syn_9533b0d6-fa52-4965-9bfd-6cbd62d4399e">here’s what it is and the simple steps to fix it ASAP</a></li>
<li> <p class="yf-1fy9kyt">Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees.</p><a href="https://moneywise.com/vanguard-raise-alarm-stocks-retirees?throw=DM3_yahoofinance&amp;placement_syn=placement_1&amp;utm_source=syn_yahoofinance_mon_aff&amp;utm_medium=BL&amp;utm_campaign=170512&amp;utm_content=syn_67b0a8eb-0433-4867-a045-0bf3b83bd020">Here’s why and how to protect yourself</a></li>
</ul>
<p>However, an analysis from Vanguard suggests that this approach is incomplete because it doesn’t consider several other factors that should determine whether a Roth conversion is a good idea for your specific situation (1).</p>
<p>To solve this problem, the financial giant offers a more precise model to evaluate Roth conversions: the breakeven tax rate, or BETR. But what exactly is the BETR approach, and can it really benefit you?</p>
<p>Here’s a closer look at the BETR approach and how it could help you make the right moves for your retirement.</p>
<h2>The BETR approach</h2>
<p>According to Vanguard, the BETR is the future tax rate at which it makes no difference whether you convert or not. In other words, it is the tax rate where the outcome is the same either way.</p>
<p>This breakeven rate is calculated based on your assumptions about portfolio growth. For example, if you assume the assets in a traditional IRA will grow at 6% a year, any taxes you pay today represent money that no longer gets the chance to compound at that rate over time.</p>
<p>By accounting for this opportunity cost, BETR offers the precise tax rate at which a conversion neither helps nor hurts you. If your future tax rate ends up higher than the BETR, a Roth conversion saves money. If it’s below, vice versa.</p>
<p>Here’s an example that helps bring this principle to life.</p>
<p>Read More: <a href="https://moneywise.com/hybrid-nothing-saved-for-retirement-catch-up?throw=HALF_yahoofinance&amp;placement_syn=placement_2&amp;utm_source=syn_yahoofinance_mon_aff&amp;utm_medium=BL&amp;utm_campaign=170512&amp;utm_content=syn_4c676dbe-033b-44dd-b17a-d2b49bd080f6">I’m almost 50 years old and don’t have retirement savings. Is it too late to catch up?</a></p>
<p>Read More: <a href="https://moneywise.com/fundrise-private?throw=HALF2_yahoofinance&amp;placement_syn=placement_2&amp;utm_source=syn_yahoofinance_mon_aff&amp;utm_medium=BL&amp;utm_campaign=170512&amp;utm_content=syn_9fdbb026-8b99-40ac-9150-54dd45ec3357">Non-millionaires can now invest in this $1B private real estate fund starting at just $10</a></p>
<h2>Jill, a high-income investor</h2>
<p>Vanguard uses the case of Jill, a high-income investor with $100,000 in a traditional IRA. She expects the account to triple to $300,000 over 20 years. Her current marginal tax bracket is 35%, and she expects it to fall to 24% in retirement.</p>