Roth Conversion Question

[Dalmore]

DW and I are OMY. She will have a nice pension that will put us in the 22% tax category. Most of our savings are in tIRAs/401K. We have no kids and no debt.

Does it make sense to do Roth conversions, taking a 22% tax hit or should we just leave it where it is? Should I be concerned about RMDs? Leaving assets to our heirs is a nice to have, but as they are not our children, I am not overly worried about it. I'd rather have it all spent the day before I die.

 

[Spock]

Depends on which tax bracket you are in now and what it will be "then" (SS+RMDs).
The SS "tax torpedo" usually makes conversions worth while, but again it depends on your brackets.
The other thing to be aware of is the current tax brackets have a 10 year expiration date, of which 2 years(?) has already run off the clock. Who knows what the ink-on-paper (laws) will read between now and then, but the common convention seems to be to make the most out of todays lower brackets.

 

[sengsational]

This question is often answered using modeling tools like i-orp and/or spreadsheets. I usually recommend the 'nerd' version of i-orp, but it takes an hour or more to get the inputs tweaked. And I also recommend having a single equity/bond allocation percentage across all tax buckets so the optimization proceeds based on tax advantages as opposed to different returns on asset classes.

 

[Dalmore]

We are currently at the upper end of the 35% tax bracket, and once we FIRE, we will be at the middle 22% bracket. SS+Pension+RMD put us around mid 32%, but that is also 16 years away for me.

 

[Spock]

A simplistic answer would then be to pack the 22% bracket with conversions any year you find yourself in that bracket between now and SS start.

 

[joylesshusband]

We are currently at the upper end of the 35% tax bracket, and once we FIRE, we will be at the middle 22% bracket. SS+Pension+RMD put us around mid 32%, but that is also 16 years away for me.

If one of you is left widowed the above math changes drastically.

Another possible consideration is if you would like to gradually mature towards the goal of having instant access to a bunch of cash without any ensuing taxation concerns and/or consequences. That beachfront property on Oahu or the nice log cabin in Vail you'd like to acquire without taking a home loan....

 

[kgtest]

If one of you is left widowed the above math changes drastically.

Another possible consideration is if you would like to gradually mature towards the goal of having instant access to a bunch of cash without any ensuing taxation concerns and/or consequences. That beachfront property on Oahu or the nice log cabin in Vail you'd like to acquire without taking a home loan....

THIS! Lol, I was just over at the ole man's house discussing finances as we so often do. We have put together a nice Roth conversion plan for him...but it still won't be enough.

He's looking at buying another tax deduction if it comes to it. Don't know if you have children, but his Roth is also part of his legacy plan. He might just decide to buy that Oahu beach house though...problem is it's at least a 5 hr flight from the mainland.

 

[KenZ71]

"the current tax brackets have a 10 year expiration date, of which 2 years(?) has already run off the clock."

So current tax rates most likely will not change for at least 8 more years? Of course nothing is carved in stone especially when talking taxes.

 

[pb4uski]

We are currently at the upper end of the 35% tax bracket, and once we FIRE, we will be at the middle 22% bracket. SS+Pension+RMD put us around mid 32%, but that is also 16 years away for me.

A simplistic answer would then be to pack the 22% bracket with conversions any year you find yourself in that bracket between now and SS start.

Since you expect to be in the 32% bracket once pension, SS and RMDs begin, I would at least pack the 22% bracket and consider packing the 24% bracket .... you'll be saving 8-10% and reducing the tax risk if one of you should die prematurely.

This is especially true if you plan to relocate to a low or no tax state.... wait until then.

 

[Perryinva]

Last I looked, 2025 was the last year of current fed tax rates. Has that changed ?

 

[Backpacker]

December 31, 2025 is expiration date for current tax brackets.