Roth Conversions for Retirees

[mickeyd]

http://www.investorsolutions.com/lc-...&artcategory=5

Why would anyone pay tax now that they could defer into the future? The reason would be that you might be able to pay less tax now than later. The schedule above shows that the required minimum distributions would end up moving most retiree’s into a higher tax bracket in the future.

A strategy might be to convert a portion of the retirement account to a Roth IRA now thus reducing the amount of required minimum distributions and thus taxable income in the future. The strategy works best if you have the funds outside of retirement accounts to pay taxes that would be due on the conversion of a traditional IRA to a Roth IRA. In addition the taxes paid would remove the funds from your estate thus avoiding estate taxes assuming your estate is large enough to be taxed when distributed to your heirs.

[cute fuzzy bunny]

I think if I'm 70 and my biggest problem is being pushed into a higher tax bracket due to excessive income, I'll feel pretty good about how I did for myself...

Besides, what happens if there is a major tax law change or a conversion to a VAT or flat tax of some kind?

I'll straddle the line for the time being...big IRA, growing Roth, see what happens.

I *am* starting to seriously consider the 72(t) sepp option for the IRA though...seems like a lot of trouble in making sure the right thing happens every year...forever...

[retire@40]

That's why you want to have a little of each, taxable retirement and nontaxable. So starting from a zero tax bracket, you draw from your taxable account first until you reach the last marginal dollar within your desired tax bracket, then draw the rest from the nontaxable accounts.

[cute fuzzy bunny]

Quote:

Originally Posted by retire@40 That's why you want to have a little of each, taxable retirement and nontaxable. So starting from a zero tax bracket, you draw from your taxable account first until you reach the last marginal dollar within your desired tax bracket, then draw the rest from the nontaxable accounts.

I could be quite wrong, since i'm a long ways from that age vincinity, but i'm pretty sure you'd want to take your RMD's from your non-taxable accounts, and then fill out with your taxable, then take the rest of the needed funds from the non-taxable.

But what the heck do I know...

[Martha]

Quote:

Originally Posted by Cute 'n Fuzzy Bunny I could be quite wrong, since i'm a long ways from that age vincinity, but i'm pretty sure you'd want to take your RMD's from your non-taxable accounts, and then fill out with your taxable, then take the rest of the needed funds from the non-taxable. But what the heck do I know...

Roth IRAs don't have RMD's during your lifetime, so you wouldn't be taking RMD's from your non-taxable accounts, but from your taxable traditional IRAs.

[cute fuzzy bunny]

Roth IRA's dont have RMD's during your lifetime, but if you're deceased they do.

However, I should have used the term "tax deferred accounts" instead of "non-taxable accounts". Problem with being 20 years away from 'real' retirement age...everything either has a tax effect on me now or it doesnt...