By keeping some funds in the traditional IRA and converting the rest, you could have a bit more control over your future tax situation. The result won’t be quite as good as if you guessed correctly about your future tax bracket, but it won’t be as bad as it would if you guessed wrong.
Upon turning 70 ½, you would have to start required minimum distributions from your traditional IRA, even if you did not need the money. But RMDs are not as terrible as many people think. A person with a life expectancy of 20 years would have to withdraw only 5% of the traditional IRA assets that year. Obviously, you’re not required to spend that withdrawal, only to pay taxes on it.
If you needed more than the required minimum to live on, you could consider taxes when deciding whether to draw from the traditional IRA or the Roth. Using the Roth would be better if your tax bracket were high, or if drawing on the traditional IRA would kick you into a higher bracket. Drawing from the traditional IRA would make sense when your bracket was low.
A savvy retiree would also factor in tax implications of withdrawing from ordinary taxable accounts. In some years, you may be able to sell money-losing investments to offset the taxes you’d otherwise owe on money taken from a traditional IRA.
Use the Roth IRA Conversion Calculator to figure whether a conversion makes sense. Also check the conversion advice offered by your stock broker and mutual fund company. Charles Schwab (Stock Quote: SCHW) and T. Rowe Price (Stock Quote: TROW) offer detailed discussions.