Transferring funds from a Traditional IRA to a ROTH IRA

Please validate my thought here.

When transferring money from a traditional IRA to a ROTH you have a choice to pay taxes on the income up front or at year end. Now, I think that you would be crazy to pay taxes up front when you can keep that money and draw more interest on it thus reducing your tax debt.

Is this thinking correct and is there any other secrets to share when contemplating this move.

Thanks

I think in general, you are probably right. However, you may want to think about paying the taxes up front. If there is a substantial amount that you are converting, then it could be a significant amount of taxes that you will owe. If you owe more at tax time than is allowable by the government, you will have to pay interest, pretty steep interest, on that amount. Also, the additional income may put you in a higher tax bracket on that additional income, making the tax liability even greater. My feeling would be, "how much interest are you going to earn on that money by keeping it until tax time?" Basically nothing, with today's interest rates. I know that I like to have my taxes overwitheld by my employer, even though it isn't the most sound financial thing to do. I figure that the interest income lost is very small, and receiving a refund makes tax time fun. It would be different if money market accounts were paying 10-12%, like in the 70's, or even 5% like in the mid to late 90's. I think you absolutely did the right thing in converting to a Roth. I totally disagree with all the "finacial professionals" that want you to sit down with them and decide if converting to a Roth is the right choice. Tax-free income on the entire account at retirement is unbeliveable, and I believe that converting is always the right choice, unless you just can't afford the taxes on it now.

Thanks for the feedback Illini.