Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Roth Conversion Strategy Changes in 2018?
Old 01-02-2018, 06:56 PM   #1
Confused about dryer sheets
 
Join Date: Mar 2011
Posts: 6
Roth Conversion Strategy Changes in 2018?

I appreciate the collective wisdom of the posters on this forum and have benefited greatly over the years as a lurker.

I have done Roth Conversions over the past few years and have always used International Stock and US Stock index funds because I knew if the market tanked during the year I could recharacterize.

Now that this option will no longer be available, should the money I convert go into a different fund like a balanced fund? That way, if the market tanks I won't have as much regret at having done the conversion (assuming stocks and bonds don't equally tank).

Is anyone else changing their conversion strategy?
__________________

__________________
jroon is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-02-2018, 07:18 PM   #2
Recycles dryer sheets
FlaGator's Avatar
 
Join Date: Aug 2008
Location: The 850
Posts: 367
Not me.

My Roth balance is low at <10% of total investments. It's invested in high risk/return asset classes - US and Intl Small Value. No way would I put bonds or funds with bonds in my Roth at this point, those are staying in the tIRA. If I can convert enough of the tIRA that I can't achieve my desired AA otherwise, I would consider it. Might load the taxable account with munis instead.
__________________

__________________
Stay at home slacker dad since 2015
FlaGator is offline   Reply With Quote
Old 01-02-2018, 07:56 PM   #3
Full time employment: Posting here.
 
Join Date: Nov 2010
Posts: 591
No changes. I have not recharacterized yet and won't expect to. If I convert less and pay my Uncle more, so be it. I'm still far ahead.
__________________
“When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.” W. Buffet
devans0 is offline   Reply With Quote
Old 01-02-2018, 08:45 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,331
Since there is no longer the "undo" recharacterization, a conversion is just like the rest of your Roth investment, so you would probably want to invest it the same way as the rest of the account.


The other obvious change is that I won't convert until the end of the year because I will have very little room under the subsidy, and don't want to go over.
__________________
RunningBum is offline   Reply With Quote
Old 01-02-2018, 08:56 PM   #5
Thinks s/he gets paid by the post
mpeirce's Avatar
 
Join Date: Feb 2012
Location: Columbus area
Posts: 1,633
Quote:
Originally Posted by RunningBum View Post
The other obvious change is that I won't convert until the end of the year because I will have very little room under the subsidy, and don't want to go over.
My plan is to do about half "soon". Then, as the end of year approaches, decide how much to top it off.
__________________
mpeirce is offline   Reply With Quote
Old 01-02-2018, 08:57 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,938
I was never a fan of the horse race game.... I just convert out of Total Stock in my tIRA to Total Stock in my Roth... this will be the last year to recharacterize and hit the top of the 15% tax bracket on the button... in the future I'll just try to dial it in as close as I can without going over into 30%-land.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 01-02-2018, 10:45 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Old and Cold in Chicago
Posts: 5,011
I'm thinking we will up our conversions, taking advantage of the new lower tax rates, to the top of the 22%.
My reasoning is:
that we have too much in IRA which was socked away at the 25% rate, so we are saving something in the end.
Compared to LTCG, it's just 2% more, since our State taxes 5% and the Fed 15%, I can save some of the LTCG for when/if we move to a 0% State.
I think the tax rate tables will change in a few years, so this opportunity will only last a short time.
__________________
Sunset is offline   Reply With Quote
Old 01-03-2018, 12:06 AM   #8
Recycles dryer sheets
Trooper's Avatar
 
Join Date: Dec 2012
Location: Chandler, AZ
Posts: 240
Quote:
Originally Posted by pb4uski View Post
I was never a fan of the horse race game.... I just convert out of Total Stock in my tIRA to Total Stock in my Roth... this will be the last year to recharacterize and hit the top of the 15% tax bracket on the button... in the future I'll just try to dial it in as close as I can without going over into 30%-land.
Same here, except I convert in/out of VFIAX. Question about an over conversion in 2018: Won't one make the marginal rate 27% (12%+15%)?
__________________
Trooper is offline   Reply With Quote
Old 01-03-2018, 02:20 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,938
Yes, I was thinking 2017 tax brackets.... in 2018 it will be 12% and 15%.... 27% in total rather then 30%.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 01-05-2018, 06:32 PM   #10
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,705
If converting at a market high is your concern, you could do the conversion monthly or quarterly - dollar cost average.
__________________
walkinwood is offline   Reply With Quote
Old 01-06-2018, 09:30 AM   #11
Dryer sheet aficionado
 
Join Date: May 2013
Posts: 30
Quote:
Originally Posted by Sunset View Post
I'm thinking we will up our conversions, taking advantage of the new lower tax rates, to the top of the 22%.
My reasoning is:
that we have too much in IRA which was socked away at the 25% rate, so we are saving something in the end.
Compared to LTCG, it's just 2% more, since our State taxes 5% and the Fed 15%, I can save some of the LTCG for when/if we move to a 0% State.
I think the tax rate tables will change in a few years, so this opportunity will only last a short time.
DH also thinks tax tables will change in a few years and the window will close on this opportunity.

Basically, for the next couple of years, qualifying for ACA subsidies is not a concern so we plan to take advantage of lower tax rates and convert to top of 24% bracket now in order to reduce future tax burden for ourselves and possibly heirs.

ETA: I think DH plans on staying invested in the same funds when he converts.
__________________
Miranda is offline   Reply With Quote
Old 01-06-2018, 12:12 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 3,021
Quote:
Originally Posted by jroon View Post
I appreciate the collective wisdom of the posters on this forum and have benefited greatly over the years as a lurker.

I have done Roth Conversions over the past few years and have always used International Stock and US Stock index funds because I knew if the market tanked during the year I could recharacterize.

Now that this option will no longer be available, should the money I convert go into a different fund like a balanced fund? That way, if the market tanks I won't have as much regret at having done the conversion (assuming stocks and bonds don't equally tank).

Is anyone else changing their conversion strategy?
I don't understand the logic of the part I bolded. I can't think of any reason why fund selection would be altered by loss of the ability to recharacterize, but I'm not very knowledgeable about conversions. Maybe no conversions to term products like CDs, but otherwise I don't follow.
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Old 01-06-2018, 12:34 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,938
Same here... I also thought it was odd but didn't bother to comment. The only thing that I could think of is that one could recharacterize, wait 30 days and then do a bigger conversion (as a % of IRA value) since the values of shares have declined and end up with more converted for the same tax cost.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 01-06-2018, 12:35 PM   #14
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,502
Quote:
Originally Posted by jazz4cash View Post
I don't understand the logic of the part I bolded. I can't think of any reason why fund selection would be altered by loss of the ability to recharacterize, but I'm not very knowledgeable about conversions. Maybe no conversions to term products like CDs, but otherwise I don't follow.
I'm not jroon, but what one used to be able to do under the old tax law was convert-recharacterize-reconvert. If the value of the investment decreased between the date of conversion and the date of reconversion, then taxes were only owed on the lower amount.

Under the new tax law, one can only recharacterize contributions, not conversions, so the above strategy is obsolete.

ETA: crossposted with pb4uski, but I think the point is that if his conversion tanked, the tax savings on the recharacterization/reconversion would at least soften the blow, so jroon could feel free to take more risk.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 01-06-2018, 07:59 PM   #15
Confused about dryer sheets
 
Join Date: Mar 2011
Posts: 6
Quote:
Originally Posted by SecondCor521 View Post
I'm not jroon, but what one used to be able to do under the old tax law was convert-recharacterize-reconvert. If the value of the investment decreased between the date of conversion and the date of reconversion, then taxes were only owed on the lower amount.

Under the new tax law, one can only recharacterize contributions, not conversions, so the above strategy is obsolete.

ETA: crossposted with pb4uski, but I think the point is that if his conversion tanked, the tax savings on the recharacterization/reconversion would at least soften the blow, so jroon could feel free to take more risk.
Yes, that is exactly the issue. Thanks.
__________________
jroon is offline   Reply With Quote
Old 01-06-2018, 08:28 PM   #16
Recycles dryer sheets
 
Join Date: Nov 2017
Posts: 269
OP, what is your assessment of the situation if you convert everything to post-tax dollars.

A lot of mis-analyses come from equating pre-tax and post-tax dollars.

Note, for example, that if you Roth-convert by moving stocks from Trad to Roth, then you have effectively bought some more stocks, which you may or may not later "regret", but that's nothing to do with Roth-conversion specifically.
__________________
43210 is online now   Reply With Quote
Old 01-06-2018, 08:38 PM   #17
Confused about dryer sheets
 
Join Date: Mar 2011
Posts: 6
Here is an interesting Boglehead thread "Roth Conversions without Ability to Recharacterize for anyone interested:

https://www.bogleheads.org/forum/vie...?f=10&t=236426
__________________
jroon is offline   Reply With Quote
Old 01-06-2018, 11:25 PM   #18
Recycles dryer sheets
 
Join Date: Apr 2005
Posts: 67
Quote:
Originally Posted by Miranda View Post
DH also thinks tax tables will change in a few years and the window will close on this opportunity.
I'm not good at predicting; particularly, about the future and politics. As passed, the law is in place for 8 years. If I remember correctly, that can't be undone through reconciliation. It would need 60 votes in the Senate to undo.

Quote:
Originally Posted by Miranda View Post
we plan to take advantage of lower tax rates and convert to top of 24% bracket now in order to reduce future tax burden for ourselves and possibly heirs.
The top of the 24% bracket is quite high income (by our standards at least). Filing jointly, with the standard deduction, it's at least $339K of income. With itemizing, HSA contributions, etc.; it could be higher.

Depending on your particular circumstances, you might want to look at Medicare IRMAA Surcharge amounts and which tax year they are based on. For our unique situation, this issue might get us to make a one time shot in 2018 at converting to the top of the 24% bracket.

I need to crunch some numbers and predict the future before deciding on this.
__________________
I wish I’d spent more time at the office.
adrift is offline   Reply With Quote
Old 01-07-2018, 09:47 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,723
I guess I can say that I will change my Roth conversion strategy.

Instead of converting to small-cap emerging markets value ETFs, I will take less risk and convert to Total US Stock Market index fund or Total International Index fund.

Also, I will not convert all at once at the beginning of 2018, but maybe lesser amounts 2 to 4 times throughout 2018.
__________________
LOL! is offline   Reply With Quote
Old 01-07-2018, 10:27 AM   #20
Thinks s/he gets paid by the post
Cobra9777's Avatar
 
Join Date: Jul 2012
Location: Texas
Posts: 1,193
One change I'm considering is converting into the new 22% bracket. Previously, I never converted beyond the top of the 15% bracket. Based on our projected mix of rates on RMDs, along with modest growth expectations, the potential downside was considerably more significant than the fairly limited upside. However, at that rate of conversion, even with more than 10 years still to go, we can only convert about 35-40% of our tax-deferred balances by 70. So I'd like to do more if it makes sense.

A couple things have changed now. Obviously, the rate is lower from 25% to 22%. But it's notable that under the new law, the rate reverts to 25% just before we start RMDs. Anything can change, but that is current law. Also, under the cumulative effect of chained CPI indexing over the next 10 years, we will convert *less* if we decide to stay inside the 12% bracket. And thus *more* of our RMDs creep into the higher incremental rates compared to prior law.

I realize it's not just about tax rate differentials. Roth balances grow tax free and we've still got a long way to go and hopefully a lot of growth along the way. So that aspect alone is very attractive, even if the tax rate then and now is the same. So I'm starting to warm up to the idea of doing some conversions at 22%.
__________________

__________________
Retired at 52 in July 2013. On to better things...
AA: 55% stock, 15% real estate, 27% bonds, 3% cash
WR: 2.0% SI: 2 pensions, some rental income, SS later
Cobra9777 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Social Security: 7 guideline changes coming in 2018 kgtest FIRE and Money 7 10-24-2017 08:07 AM
Seeking Optimal Roth Conversion/RMD Strategy lawman3966 FIRE and Money 42 07-30-2015 05:33 PM
Thinking about a Roth conversion strategy swampwiz FIRE and Money 11 03-21-2010 05:53 PM
Strategy for Roth 401k to Roth IRA conversion and withdrawals sweng85 FIRE and Money 9 04-21-2009 11:28 PM

 

 
All times are GMT -6. The time now is 08:44 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.