Roth IRA Conversions for Retirees

[mickeyd]

http://www.investorsolutions.com/lc-...memberid=13387

A provision in the tax law adopted in 1998 finally kicked into effect on January 1st 2005.* The new provision could be a great estate planning tool for certain affluent retirees allowing them to pass on greater after tax savings to their children and grandchildren.* The provision that came into effect on January 1st of this year will allow individuals to exclude required minimum distributions made from their traditional IRAs when computing their modified adjusted gross income.* This will make it easier for retirees to meet the $100,000 modified adjusted gross income limit for converting a traditional IRA to a Roth IRA.

[BUM]

I went through the simulator today to see what it would cost to convert to a Roth. Holy crap almost a six figures at 25% tax rate. Seems too high.

[Nords]

Originally Posted by BUM

I went through the simulator today to see what it would cost to convert to a Roth. Holy crap almost a six figures at 25% tax rate. Seems too high.

The trick is to stay in the 15% bracket and do partial conversions over a number of years.

But if you're going to be in a 15% or 25% bracket when you take RMDs then a conversion may not worth it. And you may be able to reduce the size of the RMD at age 70 by starting withdrawals before then, although that pretty much defeats the purpose of the tax deferral.

I can predict that our tax brackets won't get any lower, so spouse & I are converting now.

[BUM]

Ah ha! Thats the ticket. Thanks Nords. No RMD here for 10+ years.

[NYCGuy]

Originally Posted by BUM

I went through the simulator today to see what it would cost to convert to a Roth. Holy crap almost a six figures at 25% tax rate. Seems too high.

Sounds like the Federal rate only. Don't forget your state income tax.