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Old 01-14-2020, 10:19 AM   #21
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Originally Posted by RunningBum View Post
I still think the only way to answer this is to run the numbers with reasonable assumptions.
Agreed. It's also a good idea to rerun the numbers each year to see if it continues to make sense. A couple years ago my calculations showed Roth conversions offered a small, but noticeable advantage. I just ran the numbers again, and it looks like I've reached a point where the outcome is virtually the same either way. So I'm not sure if I'll convert more next year or not. My traditional IRA is low enough now that I'll spend it all by the time I'm 63 anyway, so no RMD's to worry about.

Even if it works out the same, I'm still leaning towards paying the taxes now with a conversion so we won't have to once we retire. It would also help keep our taxable income lower for health care subsidies and whatnot.
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Old 01-16-2020, 12:47 PM   #22
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The basic rule still applies.........what will you pay today to convert vs what will you pay later ? Even if initially it is favorable to convert, at some point the remaining TIRA will produce a small enough RMD that possibly won't be taxed due to the higher deduction. If you keep converting you will pay a tax to convert $$$ that would have produced income subject to no tax so it might make sense to stop at that point.
Agree with this. If I have no taxable accounts and all I have are TIRA, Roth and SS, I'm going to try to convert to that "sweet spot" where RMD's + SS is not taxed. In this situation, I wouldn't want to convert to the point where there is no money in TIRA as you would be wasting the zero tax bracket (standard deduction).

For example, assuming a first year RMD % of 3.90%, if ALL you had was TIRA, then you could have a RMD of $27,400 (MFJ) and pay zero taxes. That $27,400 RMD equates to about a $700,000 TIRA balance. In this (very simple) example, converting an IRA to below that balance would result in overpaying taxes. Obviously, you would then need to factor in taxes on SS and other income you might have.

I guess my point is that there are reasons that you would NOT want to totally convert your TIRA to a Roth. It takes some calculations to figure out what you want your ending TIRA to be, but it is probably some number above $0. And, of course, that ending balance is constantly changing due to market changes.
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Old 01-16-2020, 01:46 PM   #23
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For OP question, I’m doing some of your plan, in that I’m converting my TIRA to Roth or avoid taxes on RMD and hope to dodge any tax increases after 2025. I have a sizable portion of our investments in TIRA so I may not completely convert, but I hope to get it to around $100K or less so any RMDs can be covered with QCDs. Lots to think about and I would agree a decision like conversions should be well thought out and personal to your situation. For example, you don’t have the expiration of tax rates after 2025. However in your shoes if you were in US, I would do some Roth conversions, the extent of them depending on your situation.
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Old 01-16-2020, 01:51 PM   #24
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I thought I'd throw some numbers into TurboTax to try to prove my point in the post above to see if I was even close.

Assume a 72 year old couple filing MFJ in 2019. This couple doesn't have anything other than a Traditional IRA and a combined $30K in SS. Their TIRA has $600K. Should they have been converting that money in the past - or perhaps this year?

Assuming they only take out their RMD of about $23,500 and combine that with their $30,000 in Social Security - they are in the 0% tax bracket. None of the IRA or SS would be taxable. Thus, it would have been a mistake to convert any of that money.

Of course, members of this forum, for the most part are not in that situation. Most have large taxable accounts or pensions, etc. But, for a lot of people it doesn't make sense to convert and for sure doesn't make sense to convert ALL of a TIRA.
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Old 01-16-2020, 02:50 PM   #25
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Originally Posted by PatrickA5 View Post
I thought I'd throw some numbers into TurboTax to try to prove my point in the post above to see if I was even close.

Assume a 72 year old couple filing MFJ in 2019. This couple doesn't have anything other than a Traditional IRA and a combined $30K in SS. Their TIRA has $600K. Should they have been converting that money in the past - or perhaps this year?

Assuming they only take out their RMD of about $23,500 and combine that with their $30,000 in Social Security - they are in the 0% tax bracket. None of the IRA or SS would be taxable. Thus, it would have been a mistake to convert any of that money.

Of course, members of this forum, for the most part are not in that situation. Most have large taxable accounts or pensions, etc. But, for a lot of people it doesn't make sense to convert and for sure doesn't make sense to convert ALL of a TIRA.
That makes sense. Thanks for running the numbers.

This is also consistent with the general rule we've been saying all along--convert if you in a lower (or probably the same) tax bracket than you will be at your RMD and SS age. Otherwise you most likely should not convert. So if you're going to be at 0% later, don't pay conversions taxes now.

And don't forget to account for growth in your IRA if you think it will grow faster than the tax brackets and standard deduction grow.
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Old 01-16-2020, 02:57 PM   #26
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That makes sense. Thanks for running the numbers.

This is also consistent with the general rule we've been saying all along--convert if you in a lower (or probably the same) tax bracket than you will be at your RMD and SS age. Otherwise you most likely should not convert. So if you're going to be at 0% later, don't pay conversions taxes now.

And don't forget to account for growth in your IRA if you think it will grow faster than the tax brackets and standard deduction grow.
Agreed. Right now, I'm better off converting. I don't have much in Taxable, but my TIRA is large enough that I doubt I'll ever get it down low enough to make RMD's completely non taxable. That and the fact our SS will be substantial if we both wait until 70.

You're right about the growth in IRA balances. I've done substantial conversions the last 3 years and my balance is higher than what it was to start with. A good problem to have.
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Old 01-16-2020, 02:59 PM   #27
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My kid now dedicates 30% of pay to Roth TSP...5% matched under the BRS, unfortunately to to traditional tax-deferred.

He can afford to do that because of the (nontaxable) BAH/BAS he also receives.
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Old 01-16-2020, 03:24 PM   #28
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I don't think keeping taxes at 0% at any time in your life should be a goal. The goal should be to maximize your portfolio and spending.
It turns out that my plan is to maximize my portfolio and spending while achieving a close to 0% tax rate for the first 6 years of retirement (prior to age 59.5). To do so, I'll be taking $24.8K in inherited IRA distributions (= to the MFJ standard deduction), recieving dividends, and most importantly, selling taxable equities with LTCGs to make my taxable income just under $80K. Then, the LTGCs are taxed at 0%, and my federal taxes are about $203 (projection for 2020). At age 59.5, I should have sold about $1M in taxable investments (realizing ~$360K in LTCGs tax-free), and taken $140K in inherited IRA distributions, all without paying federal taxes. By resetting the basis on most of the taxable funds, I'll have them to spend nearly tax-free on a house (expensive, in Hawaii).

Then, from 59.5 to 70, I'll focus on taking tax-deferred withdrawals and paying taxes to try to minimize the later tax torpedo when SS kicks in. If anyone thinks there's a better way to attack this, please let me know!
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Old 01-16-2020, 03:36 PM   #29
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It turns out that my plan is to maximize my portfolio and spending while achieving a close to 0% tax rate for the first 6 years of retirement (prior to age 59.5).
Then, from 59.5 to 70, I'll focus on taking tax-deferred withdrawals and paying taxes to try to minimize the later tax torpedo when SS kicks in. If anyone thinks there's a better way to attack this, please let me know!
That’s my plan, I now in stage 2. The only problem is it hurts leaving near 0% tax rate.
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Old 01-16-2020, 03:59 PM   #30
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Originally Posted by GrayHare;2353908[B
]If you are going to convert, in general you want to do so while tIRA asset prices are low. [/B]So you want to get in your time machine and bulk convert during 2009 or 2010 so that the run-up in value during the next decade all happens tax free. Converting now, while asset valuations seem high, is more risky. You might convert, pay the tax, then see the market tank depending on who is next elected prez.
Single best way to convert. And no need to get back to the future. Markets will correct in the future. Do the young uns in your circles a big favor by explaining this to them. They are likely to have more than one such opportunity . I tell every 20 something that I come across to:
1. Build up a Roth balance of $50k by age 30.
2. Keep cash on hand to pay taxes due on opportunistic ROTH conversions every time market goes into a tizzy

I know of one that listened to me...
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