Would it ever be a bad idea to convert a traditional IRA to a Roth IRA with the following assumptions?
Taking all your assumptions: With Roth, you take $6112 from work, (let's call you tax rate 10%) pay $612 in taxes, and contribute $5500 (the max if you are younger than 50).  This $5500 will grow to $21,283 in 20 years at 7% annual growth ($5500*(1.07^20)), and you will pay no additional taxes on it. With the traditional IRA, you take $6112 from work, pay $612 in taxes, and contribute $5500.  You will receive a tax deduction at tax time of $612 for the contribution.  This money will also grow to $21,283.  This will be taxed at your ordinary income rate (which we're calling 10%), costing you $2123 at the time of withdrawal.  You will have $19,155 left over. EDIT: If you invest your tax savings from every contribution to the Traditional IRA, then the numbers wash out.  Perhaps a pivotal question is whether you believe you will have greater taxable earnings from your investments in retirement than you have in taxable earnings today -- affecting the rate at which you are taxed. Even if you're paying a lot of taxes now, you're talking marginal dollars when you look at current contribution, and average tax rate when making withdrawals.  IE, if you currently pay 28% on your last dollar (and assuming your contribution is entirely in your marginal rate), then you're paying 28% on all of the Roth contributions, but probably paying a lower average tax rate, due to the lower tax rates on the first many dollars.   Look at the overall average tax rate of your expected retirement income - if you're expecting to pull out $100k a year, you're probably paying less than 20% in average taxes, because the first third or so is taxed at a very low rate (0 or 15%), assuming things don't change in our tax code.  Comparing that to your 28% and you have a net gain of 8% by paying the taxes later - nothing to shake a stick at. At minimum, have enough in your traditional IRA to max out the zero tax bucket (at least $12k).  Realistically you probably should have enough to max out the 15% bucket, as you presumably are well above that bucket now.  Any Roth savings will be more than eliminated by this difference: 28% tax now, 15% tax later?  Yes please. A diversified combination is usually best for those expecting to have a lot of retirement savings - enough in Traditional to get at least $35k or so a year out, say, and then enough in Roth to keep your comfortable lifestyle after that. The one caveat here is in the case when you max out your contribution levels, you may gain by using money that is not in your IRA to pay the taxes on the conversion.  Talk to your tax professional or accountant to verify this will be helpful in your particular instance. "To answer your question point by point - I'd focus on the last point. The back of my business card -  Let's focus on Single. The standard deduction and exemption add to over $10K. I look at this as ""I can have $250K in my IRA, and my $10K (4%) annual withdrawal will be tax free. It takes another $36,900 to fill the 10 and 15% brackets. $922K saved pretax to have that withdrawn each year, or $1.17M total.  That said, I think that depositing to Roth in any year that one is in the 15% bracket or lower can make sense. I also like the Roth Roulette concept, if only for the fact that I am Google's first search result for that phrase.  Roth Roulette is systematically converting and recharacterizing each year the portion of the converted assets that have fallen or not risen as far in relative terms. A quick example. You own 3 volatile stocks, and convert them to 3 Roth accounts. A year later, they are (a) down 20%, (b) up 10%, (c) up 50%. You recharacterize the first two, but keep the 3rd in the Roth. You have a tax bill on say $10K, but have $15K in that Roth."
In the same way that you are taxed on the actual amount of money you convert from the Traditional IRA to the Roth IRA -- rather than on the amount of money that you initially contributed to your 401(k) or on the amount of money that you rolled over to your Traditional IRA -- that converted amount becomes the contributions to your Roth. So (3) is the correct answer. It doesn't matter how you accumulated the money in the first place; as long as the IRS has had the opportunity to dig their claws into it, it counts as a contribution to your Roth. "Unless your 401(k) plan is particularly good (i.e. good fund choices with low fees), you probably want to contribute enough to get the maximum match from your employer, then contribute to an IRA through a low-cost brokerage like Vanguard or Fidelity, then contribute more to your 401(k). As JoeTaxpayer said, contributions to a Roth IRA can be withdrawn tax- and penalty-free, so they are useful for early retirement. But certainly use your 401(k) as well--the tax benefits almost certainly outweigh the difficulty in accessing your money. JB King's link listing ways to access retirement money before the traditional age is fairly exhaustive. One of the main ways you may want to consider that hasn't been highlighted yet is IRS section 72(t) i.e. substantially equal periodic payments (SEPP). With this rule you can withdraw early from retirement plans without penalties. You have a few different ways of calculating the withdrawal amount. The main risk is you have to keep withdrawing that amount for the greater of five years or until you reach age 59½. In your case this is is only 4-5 years, which isn't too bad. Finally, in addition to being able to withdraw from a Roth IRA tax- and penalty-free, you can do the same for Roth conversions, provided 5 years have passed. So after you leave a job, you can rollover 401(k) money to a traditional IRA, then convert to a Roth IRA (the caveat being you have to pay taxes on the amount as income at this point). But after 5 years you can access the money without penalty, and no taxes since they've already been paid. This is commonly called a ""Roth conversion ladder""." Don’t take the cash deposit whatever you do. This is a retirement savings vehicle after all and you want to keep this money designated as such.   You have 3 options:  1) Rollover the old 401k to the new 401k. Once Your new plan is setup you can call who ever runs that plan and ask them how to get started. It will require you filling out a form with the old 401k provider and they’ll transfer the balance of your account directly to the new 401k.  2) Rollover the old 401k to a Traditional IRA. This involves opening a new traditional IRA if you don’t already have one (I assume you don’t). Vanguard is a reddit favorite and I can vouch for them as Well. Other shops like Fidelity and Schwab are also good but since Vanguard is very low cost and has great service it’s usually a good choice especially for beginners.  3) Convert the old 401k to a ROTH IRA. This is essentially the same as Step 2, the difference is you’ll owe taxes on the balance you convert. Why would you voluntarily want to pay taxes f you can avoid them with options 1 or 2? The beauty of the ROTH is you only pay taxes on the money you contribute to the ROTH, then it grows tax free and when you’re retired you get to withdraw it tax free as well. (The money contained in a 401k or a traditional IRA is taxed when you withdraw in retirement).   My $.02. 401k accounts typically have higher fees than IRAs, even if they own the same mutual funds the expense ratios are usually more in the 401k. The last 2 times I’ve changed jobs I’ve converted the 401k money into my ROTH IRA. If it’s a small sum of money and/or you can afford to pay the taxes on the money I’d suggest doing the same.  You can read up heavily on the pros/cons of  ROTH vs Traditional but My personal strategy is to have 2 “buckets” or money when I retire (some in ROTH and some in Traditional). I can withdraw as much money from the Traditional account until I Max out the lowest Tax bracket and then pull any other money I need from the ROTH accounts that are tax free.This allows you to keep taxes fairly low in retirement.  If you don’t have a ROTH now this is a great way to start one. For reporting purposes, most IRA firms prefer that you roll the 401(k) funds into a Rollover or Traditional IRA and then convert to the ROTH from there. The mid-air conversions (401(k) directly into a ROTH) can get tricky when you go to do your taxes the following year if the 1099 form from the releasing custodian and the 5498 form from the accepting custodian have different numbers due to the conversion amount and taxes withheld if any. I rolled mine over from the company I was at into my own brokerage house.  You can't roll them into a Roth IRA, so I needed to setup a traditional IRA. There is paperwork your old jobs can provide you.  I had to put in some mailing addresses, some account numbers and turn them in.  My broker received it, I chose what I wanted to invest it in and that was that.  No tax penalty or early withdrawal penalty.  The key to avoiding penalties is to have your past employers send the money directly to another retirement fund, not send a check to you. You have two questions - first - no, if you are above the deduction limit, then you still have a traditional IRA deposit but with post tax money, tracked via form 8606.  Second - If I read this right, if you cannot take the deduction, but can do the Roth, by all means, this is the 'no-brainer' decision. Makes no sense to deposit non-deducted to a traditional IRA if you can do Roth.  But - for sake of the full picture - if above the Roth limit, you still should make the post tax deposit (to the traditional.) If you have no pretax IRA at all, you can convert immediately. If you have a mix, you have the option to convert piecemeal paying the tax on the pro-rated amount the pretax represents. Conversions are done on a pro-rata basis.  If you haven't yet paid tax on the money, you need to do so in the process of converting. Let's say you have a total of $50k in your account: If you decide to convert half of this to a Roth ($25k), you'd owe tax on $20k of that, because 80% of your holdings in the traditional IRA have not been taxed yet.  The non-deductible contributions have been taxed, so you don't need to pay tax again on that part. More information is here. I wrote an article about this a while ago with detailed instructions, so I'll link to it here. Here's a snippet about how to use the Roth IRA loophole and report it properly: You don’t have any Traditional/Rollover IRA at all. You deposit up to the yearly maximum (currently $5500) into a traditional IRA. In your case, you re-characterized, which means you essentially deposited. The fact that it lost money may help you later if you have extra amounts in Traditional IRA. You convert your traditional IRA to become Roth IRA ($5500 change designation from Traditional IRA to Roth IRA).  You fill IRS form 8606 and attach it to your yearly tax return, no tax due. You have  a fully funded Roth IRA account. If you have amounts in the Traditional IRA in excess to what you contributed last year - it becomes a bit more complicated and you need to prorate. See my article for a detailed example. On the form 8606 you fill the numbers as they are. You deposited to IRA 5500, you converted 5100, your $400 loss is lost (unless you have more money in IRA from elsewhere). If you completely distribute your IRA, you can deduct the $400 on your Schedule A, if you itemize.