Even better: The BETR is not a static number. There are investor choices that can lower the rate, and this, in effect, expands the pool of those who could ultimately benefit from the long-term tax advantages of a Roth conversion. Investors can:
Pay conversion taxes from a taxable account. Tapping into a separate cache of cash allows the full value of the IRA to move to a tax-advantaged account. The more tax-inefficient the account used to pay the conversion tax, the lower the BETR (and the greater the benefit of converting).
Invest over a longer time horizon. The longer the time frame, the greater the potential for Roth assets to compound tax-free, and the lower the BETR for Roth-converting investors who pay the conversion tax from taxable assets.
Use the Roth conversion as an opportunity to make future backdoor Roth IRA contributions. Only investors filing under a certain income limit qualify for Roth IRA contributions—but the two-step backdoor Roth conversion strategy is open to investors at all income levels. By using the backdoor method, you can contribute up to $6,000 ($7,000 if you’re 50 or older) to your Roth IRA each year. Over time, that adds up to a lot of tax-advantaged investment opportunities. And don’t forget to consider your IRA’s tax basis. Nondeductible contributions will not be taxed again during a Roth conversion. This, too, will lower the BETR.