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Does it make sense for me to convert to Roth?
Old 12-26-2018, 01:05 PM   #1
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Does it make sense for me to convert to Roth?

Need some "fresh eyes" input on this. And I need to decide ASAP to make any changes before year-end.

  • Single with no heirs to worry about.
  • Collecting a small pension currently.
  • Planning on taking SS at 70.

I have ~80% of my savings in tIRAS and ~20% in ROTHs. (I used most of my after-tax savings in my early retirement years.)

I am approaching RMDs in a few years.

RMDs plus SS (when added to my pension) will likely push me into Tax Torpedo AND IRMAA territory forever.

I'm in the 22% tax bracket now.

I have a little headroom in the next few years to make some ROTH conversions (~$15K-20K before I am hit with IRMAA surcharges on Medicare Part B and Part D), but will have to pay the additional taxes due on making any conversion out of tIRA.

With this scenario, does it even make sense to convert?

omni
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Old 12-26-2018, 01:13 PM   #2
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Sounds like it couldn't hurt. Roth conversions are generally beneficial at a tax rate at or below your marginal tax rate once SS and RMDs are online... and it sounds like 22% is below your ultimate rate so I don't see any downside.
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Old 12-26-2018, 02:05 PM   #3
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Quote:
Originally Posted by omni550 View Post
Need some "fresh eyes" input on this. And I need to decide ASAP to make any changes before year-end.

  • Single with no heirs to worry about.
  • Collecting a small pension currently.
  • Planning on taking SS at 70.

I have ~80% of my savings in tIRAS and ~20% in ROTHs. (I used most of my after-tax savings in my early retirement years.)

I am approaching RMDs in a few years.

RMDs plus SS (when added to my pension) will likely push me into Tax Torpedo AND IRMAA territory forever.

I'm in the 22% tax bracket now.

I have a little headroom in the next few years to make some ROTH conversions (~$15K-20K before I am hit with IRMAA surcharges on Medicare Part B and Part D), but will have to pay the additional taxes due on making any conversion out of tIRA.

With this scenario, does it even make sense to convert?

omni
Your percentage of Trad/Roth is about the same as mine. I don't think it could hurt to have a higher percentage in the Roth. It gives you more flexibility, assuming your tax rate will be the same (or higher) once RMD's kick in. I'm doing as much as I can over the next couple of years (before I have to worry about IRMAA).
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Old 12-26-2018, 02:55 PM   #4
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I'm 63 and married, and have a cash flow model that goes out for 30 years (optimistic (pessimistic?), I know). We're in also in the 22% tax bracket and we are planning to take SS at age 70. In our case, I find it makes sense to make ROTH conversions (a) even AFTER considering IRMAA charges; (b) even after our RMD's begin (although at a reduced amount); and (c) ALMOST up the point where our marginal tax rate increases (at Age 80). This is due to taxes paid on the conversions made in our mid-70's outweighing the growth that might be realized in a ROTH.

Everyone's situation is different, but yes, I can see where you would be better off doing the ROTH conversions now. The other thing is, I don't think our federal tax rates will get any lower than they are now.
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